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Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 65802-SS

EMERGENCY PROJECT PAPER

ON A

PROPOSED GRANT

IN THE AMOUNT OF US$9 MILLION

TO THE

REPUBLIC OF SOUTH SUDAN

FOR A

PRIVATE SECTOR DEVELOPMENT PROJECT

January 3, 2012

Financial and Private Sector Development East and Southern Africa Africa Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 1, 2011)

Currency Unit = South Sudanese Pound (SSP) US$1 = SSP3.3

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS BoSS Central Bank of South Sudan

BPC Business Plan Competition CBOs Community Based Organizations CDD Community Driven Development CPA Comprehensive Peace Agreement DPA Darfur Peace Agreement EAC East African Community ESPA Eastern Sudan Peace Agreement ESSAF Environmental and Social Screening Assessment

Framework GAP Gender Action Plan GoNU Government of National Unity GoSS Government of the Republic of South Sudan IBRD International Bank for Construction Development ICR Implementation Completion and Results Report IDA International Development Association IFC International Finance Corporation IFRs Interim Financial Reports IMF International Monetary Fund IPM Integrated Pest Management ISN Interim Strategy Note KCB Kenya Commercial Bank-Sudan MCII Ministry of Commerce, Industry, and Investment MDTF-SS Multi Donor Trust Fund Southern Sudan MFIs Microfinance Institutions MOU Memorandum of Understanding ORAF Operational Risk Assessment Framework PAR Portfolio at Risk PCU Project Coordination Unit PDO Project Development Objective PFMU Project Financial Management Unit PIM Project Implementation Manual PPD Public Private Dialogue PSD Private Sector Development

PSDP Private Sector Development Project RCS Rural Credit Societies RSS Republic of South Sudan SSBF South Sudan Business Forum SSDP South Sudan Development Plan SSMDF South Sudan Microfinance Development Facility SSTTF South Sudan Transition Trust Fund TA Technical Assistance WDR World Development Report

Vice President: Obiageli Katryn Ezekwesili Country Director: Bella Bird Country Manager: Laura Kullenberg

Sector Manager: Michael J. Fuchs, Acting Task Team Leader: Andres F. Garcia

REPUBLIC OF SOUTH SUDAN Private Sector Development Project

CONTENTS

Page

A. Introduction ............................................................................................................................. 1

B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed

Bank Emergency Project ......................................................................................................... 1

C. Bank Response: The Project ................................................................................................... 5

D. Appraisal of Project Activities ................................................................................................ 8

E. Implementation Arrangements and Financing Plan .............................................................. 16

F. Key Risks and Mitigating Measures ..................................................................................... 20

G. Terms and Conditions for Project Financing ........................................................................ 21

Annex 1: Detailed Description of Project Components ........................................................... 23

Annex 1A: Project Description of Financial Sector Issues and Compliance with OP 8.30 .. 31

Annex 2: Results Framework and Monitoring ........................................................................ 39

Annex 3: Summary of Estimated Project Costs ....................................................................... 41

Annex 4: Operational Risk Assessment Framework (ORAF) ................................................ 43

Annex 5: Financial Management and Disbursement Arrangements ..................................... 46

Annex 6: Procurement Arrangements ...................................................................................... 57

Annex 7: Implementation and Monitoring Arrangements ..................................................... 61

Annex 8: Economic and Financial Analysis ............................................................................. 64

Annex 9: Environmental and Social Screening and Assessment Framework ...................... 67

Annex 10: Project Preparation and Appraisal Team Members ............................................. 93

Annex 11: Documents in Project Files ...................................................................................... 94

Annex 12: Statement of Loans and Credits .............................................................................. 95

REPUBLIC OF SOUTH SUDAN

PRIVATE SECTOR DEVELOPMENT PROJECT

PROJECT PAPER

AFRICA REGION

Basic Information Country Director: Bella Bird Sector Manager: Michael Fuchs, Acting Team Leader: Andres F. Garcia Project ID: P128239 Expected Effectiveness Date: January 30, 2012 Lending Instrument: Emergency Recovery Loan

Sectors ( percent): SME Finance (40 percent), Microfinance (30 percent) and Gen. ind/trade (30 percent) Themes ( percent): SME Finance (70 percent), Other Pvt. Sect (30 percent) Environmental category: B (Partial Assessment) Expected Closing Date: November 30, 2014 Joint IFC: Joint Level:

Project Financing Data [ ] Loan [ ] Credit [X] Grant [ ] Guarantee [ ] Other: Proposed terms: Grant from South Sudan Transition Trust Fund

Financing Plan (US $m) Source Total Amount (US $m)

Total Project Cost: Co-financing: Borrower: Total Bank Financing: IBRD IDA SSTTF Grant Recommitted

9.0 0.0 0.0 0.0 0.0 0.0 9.0

Client Information Recipient: Republic of South Sudan Responsible Agency: Ministry of Commerce, Industry, and Investment (MCII) Contact Person: Mary Akech Taban, Director, Private Sector Development Directorate Telephone No.: +249 907710111/+249955059678 Fax No.: Email: [email protected]

Estimated disbursements (Bank FY/US$m) FY 2012 2013 2014 2015 Annual 0.5 4.4 3.1 1.0 Cumulative 0.5 4.9 8.0 9.0

Project Development Objective and Description Project Development Objective (PDO): The project development objective (PDO) is to improve access to finance for private sector

development and increase employment opportunities in South Sudan. Project description Component 1 – Establish Commercially-Viable Microfinance Institutions (US$ 2.8 million). There are two sub-components under this component. The first sub-component will provide technical and financial support to MFIs, promoting the start up and expansion of microfinance providers and services throughout South Sudan. This will be in an amount of US$1.9 million, (US$1.5 million for loan capital and US$0.4 million for technical assistance for MFIs). The second sub-component will support the operating costs of the South Sudan Microfinance Development Facility (SSMDF) for a period of 3 years in an amount of US$0.9 million. The SSMDF is a microfinance Apex institution established in 2009, under the MDTF-SS funded PSD project and serves as a wholesale microfinance body for South Sudan. Component 2 – Promote Micro-Entrepreneurship (US$ 4.4 million) This component will catalyze entrepreneurship through a Business Plan Competition (BPC) for existing businesses and start-ups. A total of US$3 million will be earmarked to support at least 100 entrepreneurs, including sub-grants of up to US$20,000 to be used as block collateral for loans provided by commercial banks. Another US$1.4 million will be allocated for the preparation, technical assistance and M&E for the BPC. Component 3 – Mobile Payments and Trade Integration Policy Support (US$ 0.3 million) This component will support the development of a regulatory framework for mobile banking and payments and provide long term advisory services on trade integration policy for South Sudan, including consideration of South Sudan’s potential membership to the East African Community (EAC). Component 4 – Institutional Strengthening of the South Sudan Business Forum and Project Management (US$ 1.5 million) This component will cater for the operating costs of the South Sudan Business Forum (SSBF), a Public-Private Sector Development Forum, established in 2009, under the MDTF-SS funded PSD project. This component will also finance the activities and operating costs of the Project Coordination Unit (PCU) which is responsible for coordinating and monitoring activities implemented by the project. It will also support technical assistance and training to build the institutional capacity of the MCII staff responsible for the development of the Private Sector in South Sudan.

Safeguard and Exception to Policies

Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)

[ X ]Yes [ ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ X ]Yes [ ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No

Does the project require any exceptions from Bank policies? Have these been approved by Bank management?

[ ]Yes [ X ] No [ ]Yes [ ] No

Key Non-Standard Conditions and Legal Covenants: Grant Agreement (GA)

Reference Description of Condition/Covenant Date Due

GA, Schedule 2, Section IV (B.1.b)

The SSMDF shall enter into collaborative arrangements with the Recipient, whereby the PCU shall handle all financial aspects of said Parts.

Disbursement Condition linked to withdrawal of funds under Part 1.2 of the Project

GA, Schedule 2, Section IV (B.1.c)

The Bank of South Sudan shall enter into collaborative arrangements with the Recipient, whereby the PCU shall handle all financial aspects of said Parts.

Disbursement Condition linked to withdrawal of funds under Part 3.1 of the Project

GA, Schedule 2, Section IV (B.1.d)

Each individual entrepreneur included in the list of Beneficiaries proposed to receive funds under that batch of Sub-Grants: (i) has been certified as eligible Beneficiary by MCII; and (ii) has signed a BPC Sub-Grant Agreement.

Disbursement Condition linked to withdrawal of funds under Sub-Grants under Part 2.1 of the Project

GA, Schedule 2, Section IV (B.1.e)

Execution of Subsidiary Agreement on behalf of the Recipient and the Bank of South Sudan, in form and substance satisfactory to the World Bank.

Disbursement Condition linked to withdrawal of funds under Sub-Grants under Part 1.1 of the Project

GA, Schedule 2, Section I (B.2)

The Recipient shall furnish an annual work plan and budget to the World Bank for its approval.

Not later than November 1 of each year


The Recipient shall appoint the Project’s external auditors with terms of reference, qualifications and experience satisfactory to the World Bank.

Not later than June 30, 2012


The Recipient shall recruit an environmental specialist with terms of reference, qualifications and experience satisfactory to the World Bank.

No later than three months after the Effective Date

GA, Schedule 2, Section I (D.1)

The Recipient shall prepare and adopt an environmental and social screening assessment framework (ESSAF), in form and substance satisfactory to the World Bank.

No later than three months after the Effective Date

1

A. Introduction

1. This Project Paper seeks the approval of the Regional Vice President to provide a Grant in an amount of US$9 million to the Republic of South Sudan for the Private Sector Development Project (PSDP) to the Ministry of Commerce, Industry, and Investment (MCII). The project development objective (PDO) is to improve access to finance for private sector development and increase employment opportunities in South Sudan. 2. The PSDP, which will be processed under the World Bank’s OP/BP 8.00, is formulated in the context of South Sudan’s overall strategy for private sector development as outlined in its three-year South Sudan Development Plan (SSDP). The strategy emphasizes the development and regulation of the economy of South Sudan in order to achieve prosperity and facilitation of the private sector. Support for increasing the role of the private sector includes improving the investment climate for Private Sector Development (PSD) and expanding access to finance in South Sudan to improve livelihoods and reduce poverty.

3. The proposed project will build upon and scale up successful components implemented by the MDTF-SS funded Private Sector Development Project under implementation since May 2007. The components of the project will include: (1) establishing commercially-viable microfinance institutions, (2) promoting micro-entrepreneurship, (3) supporting the development of mobile payments and trade integration policy, and (4) strengthening the South Sudan Business Forum (SSBF) and project management. The key outcomes of the project include: (a) at least 250 jobs generated by enterprises supported by the Business Plan Competition (BPC), (b) at least 50,000 people with access to finance through targeted Microfinance Institutions (MFIs) and BPC, (c) at least 100 entrepreneurs with access to finance through the BPC, and (d) the completion of a regulatory framework for mobile banking and payments.

B. Emergency Challenge: Country Context, Recovery Strategy and Rationale for Proposed Bank Emergency Project

Country Context

4. The Republic of South Sudan became a new country on July 9, 2011, following a referendum on self-determination in January, 2011. South Sudan, with an estimated population of 8.3 million, is bordered by Ethiopia to the east, Kenya, Uganda, and the Democratic Republic of the Congo to the south, and the Central African Republic to the west. At 644,329 sq. km, it is roughly the size of Afghanistan (647,500 sq. km) but with just under one third of the population, giving it a population density that is less than one tenth of neighboring Uganda. The population is very young, with 16 percent under the age of five, 32 percent under the age of ten, 51 percent under the age of 18, and 72 percent under the age of 301. The population is largely rural with 83 percent residing in rural areas.

5. Troubling Socio-economic Indicators. Human development indicators are among the worst in the world. Only 27 percent of the 15 years and above population is literate. In 2009, there were 129 students per classroom. The literacy rate for males is 40 percent compared to 16

1 Key Indicators for South Sudan. South Sudan Centre for Census, Statistics and Evaluation, (http://siteresources.worldWorld Bank.org/INTSUDAN/Resources/Key-Indicators-SS.pdf).

2

percent for females. Infant mortality rate is 102 (per 1,000 live births), maternal mortality rate is 2,054 (per 100,000 live births), and only 17 percent of children were fully immunized. Fifty five percent of the population has access to improved sources of drinking water, but 38 percent of the population has to walk for more than 30 minutes one way to collect drinking water. Eighty percent of the population does not have access to any toilet facility. Meanwhile, 15 percent of households own a phone—59 percent in urban areas compared to 8 percent in rural areas. South Sudanese want to see marked improvements in these indicators, and in job opportunities and economic prosperity, and have high expectations that independence will deliver them.

6. Government capacity is weak despite improvements, and the pace of implementation of reconstruction programs during the Comprehensive Peace Agreement (CPA) period has been short of popular expectations. The combination of poverty, insecurity, unstable relations with Sudan, and poor governance means the Government faces daunting challenges in taking the development plan forward.

7. Even after independence, South Sudan is experiencing a highly fragile and vulnerable transition, including spurts of violence from breakaway militias and a delicate situation with its border with Sudan. Moreover, a number of issues are still being negotiated with Sudan, including the distribution of assets and oil revenue, external debt, citizenship, freedom of movement, the North-South border, and the status of Abyei.

8. In the private sector, the majority of local enterprises in South Sudan that are owned by South Sudan nationals and consist of small and micro enterprises working in low value sectors (e.g. trade, retailing and rudimentary transformation of food products) that remain mainly informal. Most of these enterprises are led by women, and can play a major role in achieving higher economic growth and employment as well as reduced poverty by improving their business performance. Additionally, the returnees to the region and ex-combatants form a pool of potential entrepreneurs that could further stimulate economic activity. During the CPA period, many Ugandan, Kenyan, and Ethiopian traders (as well as ones from other countries) have quickly established themselves to provide the necessary goods and services ranging from food (e.g. cooking oil, water, beer) to construction materials and housing. However, the emergence of South Sudanese entrepreneurs has been far less visible.

9. Independence is an opportunity for South Sudanese to channel their desire for change into efforts that will bring them, and the new state, into a dynamic partnership that helps realize the new country’s geopolitical and economic potential, generating rapid improvements in terms of reducing poverty and broad-based growth. Helping South Sudan break away from that past and embark on a cycle of inclusion and development will also generate positive development externalities for all its neighbors.

Recovery Strategy

10. New Interim Strategy. An Interim Strategy Note for South Sudan will be presented soon after it becomes a member of the World Bank, currently scheduled for the third quarter of FY12. The World Bank is not starting from zero as it has been extensively involved in South Sudan since 2005, through the Multi Donor Trust Fund Southern Sudan (MDTF-SS), a robust knowledge and analytical program, a strong field presence in the World Bank’s Juba Office, and

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an active role in partnerships and donor coordination efforts. In preparing a country strategy for South Sudan, the World Bank will draw on: (i) lessons from its ongoing engagement in South Sudan; (ii) the framework and insights articulated in the 2011 World Development Report (WDR): Conflict, Security, and Development; (iii) the new World Bank strategy for Africa; and (iv) advice and support from the Nairobi Hub on conflict and fragility. The World Bank’s strategy will be prepared in consultation with the Government of South Sudan, development partners and key stakeholders, including civil society and the private sector. The strategy will be framed within the recently completed SSDP.

11. The World Bank’s strategy for South Sudan will be elaborated around a number of cross-cutting priorities. First, there is a need to continue efforts to improve governance across the public sector, focusing on core capacities and competencies, transparency and accountability in the management of public resources, and the ability of the Government to manage its oil economy. Second, over the medium-term, the economy needs to diversify away from oil, with a particular focus on developing its considerable agricultural potential and improving connectivity across the country. The employment agenda will be critical, but this must focus on developing the private sector and investing in labor-intensive rural infrastructure and connectivity to improve rural livelihoods and develop agribusiness potential. Third, the Government needs to focus on basic service delivery, moving away from a largely humanitarian and NGO-driven approach during the CPA period, to one where the state is clearly responsible and accountable for delivering basic services to the population. As the 2011 WDR points out, building even ‘good enough’ capacity takes time, so the Government needs to focus on alternative service delivery modalities adapted to sectoral and country contexts, while it builds up its own capacity. Fourth, to avoid a Juba-centered development model and ensure that populations in the periphery can see improvements in services and economic opportunities, there is a need to gradually work with and strengthen the capacity of state and local governments. Fifth, and as highlighted by the 2011 WDR, there is a need to focus on community-based and bottom-up approaches to service delivery and livelihoods.

Rationale for Proposed Bank Emergency Project

12. There is broad agreement within South Sudan, and among development partners, that the immediate post-independence efforts must focus on a limited set of key priorities, while also pursuing some quick-starting activities that can show early results and help to create inclusive-enough domestic coalitions, which in turn can begin to create a virtuous, upward economic cycle of the kind described in the 2011 WDR.

13. Private Sector Development is a constitutional objective for the Government of South Sudan. South Sudan is emerging from a 20-year civil war and is amongst the poorest regions in the world, with 90 percent of the population earning less than US$1 per day. Agriculture continues to be a dominant part of the economy and accounts for around 80 percent of employment, including that in agro-industries. The civil war destroyed physical capital, institutions, and the opportunity to learn and develop relevant skills. It further prevented the emergence of entrepreneurs. Few businesses owned by South Sudanese exist even several years after the end of the war. The Government is committed to delivering a peace dividend to its people in the form of jobs, services, and opportunities for fulfilling livelihoods based on their skills and aspirations. Experience around the world, including in post-conflict settings, suggests

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that the central path toward this goal is through private investment and entrepreneurship. In this context, a competitive and growing private sector will offer the people of South Sudan the opportunity to extricate themselves from poverty through employment and capital investment, and will generate tax revenues necessary for the Government to improve service delivery. As outlined above, the rationale for this Phase II project is that it would reinforce and expand the MDTF-SS funded PSD project’s overall development impact by supporting the private sector activities that promote job creation.

14. The private sector plays a role not only in employment provision, but in governance and broader state-building. A growing body of research shows that the transition to peace requires the participation of the private sector, and that an exclusive focus on the public sector neglects the driving force for economic, and subsequently political stability2.

15. The MDTF-SS funded PSD project has proven to be a successful model for financial and private sector development. Since 2007, the project has performed satisfactorily in a difficult post-conflict environment, and after four years of implementation is close to meeting its development objectives. Initial drafts of the Trade and Investment Policy and the National Microfinance Policy have been prepared and a secretariat to support the Public Private Dialogue (PPD) forum has been established with several Working Groups for the relevant agenda already instituted and operational. In the first round of the BPC, 45 entrepreneurs (25 of them women) benefitted from grants of US$20,000 to act as collateral for business loans from KCB-Sudan. The Gender Action Plan of the World Bank (GAP) contributed US$500,000 to this round of the BPC as part of its effort to empower women entrepreneurs. SSMDF has provided TA and lines of credit to six MFIs. All together, the project has helped to facilitate access to financial services for over 45,000 individuals, through financing and technical assistance support to MFIs, including over 34,000 women. The GAP has also provided US$500,000 for support to women clientele of MFIs. A Monitoring and Evaluation (M&E) system is being set up at the Ministry of Commerce, Industry and Investment (MCII) and will be useful in tracking progress under the project.

16. Beneficiaries from the BPC are from all ten States, and the majority of the business supported are in agriculture (64 percent), followed by services (27 percent), and manufacturing (9 percent). The latest report from KCB shows 20 (44 percent) BPC winners repaying the loans. The MFIs supported by SSMDF have provided over 34,000 loans (women represent 70 percent), and currently have over 46,000 active accounts (women represent 73 percent).

17. Despite the achievement of the MDTF-SS funded PSD project, there is a huge unmet demand for support to the private sector. Since 2005, more than two million people have come back to South Sudan looking for opportunities. Now that South Sudan is independent, even more people are expected to come back looking for jobs, including those who have to leave from Sudan.

2 Operationalizing the 2011 World Development Report: Conflict, Security, and Development.

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C. Bank Response: The Project

Bank’s Strategy for Emergency Support

18. The World Bank’s Executive Directors recently approved the South Sudan Transition Trust Fund (SSTTF), which has been created to continue to support South Sudan while it becomes a full member of International Monetary Fund (IMF) and International Development Association (IDA)3. SSTTF received US$75 million for early assistance, based on a conservative projection of the level of support South Sudan might expect to receive under IDA16, upon qualifying for such support in due course. Under those assumptions, US$75 million is an estimate of the first year’s tranche of such support, and on the further assumption that South Sudan is likely to have become a member of International Bank for Reconstruction Development (IBRD) and IDA by July 2012.

19. The operations supported through SSTTF are expected to be quick-starting and quick-disbursing. In determining which financing interventions to support in advance of South Sudan’s IDA membership, the World Bank considered priorities agreed with the Government of South Sudan, interventions in line with 2011 WDR recommendations, MDTF-SS activities that have been successful or can build on emerging lessons, and that can be easily scaled up to allow for a smooth transition from trust-funded to regular projects and programs. It also takes into account the activities of other donors and the Government’s evolving longer-term priorities. Projects proposed to be funded under the SSTTF focus on improving access to health services, especially in rural areas, economic diversification and enhancing rural livelihoods, improving roads while targeting high agricultural production areas and private sector development by supporting new entrepreneurs and access to microfinance.

Project Development Objectives

20. The project development objective (PDO) is to improve access to finance for private sector development and increase employment opportunities in South Sudan.

Summary of Project Components

21. The project consists of the following four components:

22. Component 1: Establish Commercially-Viable Microfinance Institutions (US$ 2.8 million)4. There are two sub-components under this component. The first sub-component will provide technical and financial support to MFIs, promoting the start up and expansion of microfinance providers and services throughout South Sudan. This will be in an amount of US$1.9 million, (US$1.5 million for loan capital and US$0.4 million for technical assistance for MFIs). The MFIs will provide micro-lending to micro-borrowers for various commercial activities that are concentrated on trade and agriculture.5 Technical and financial support will be provided to strengthen the institutional and financial capacity of microfinance providers who 3 On April 15, 2011, GoSS delivered an application for membership in IBRD, IDA, IFC and MIGA, and in the IMF. South Sudan is likely to have become a member of IBRD and IDA by July 2012. 4 This component includes a line of credit and complies with the World Bank’s policy on financial intermediary lending (OP 8.30) as elaborated in Annex 1A. 5 The bulk of MFI’s portfolios in South Sudan is concentrated in trade and services.

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have the potential to operate on a sustainable basis. Technical and financial support will strengthen the institutional and financial capacity and performance of diverse micro finance providers. This component will provide funding for institution-building and delivery of microfinance services, as well as financing for training and technical consulting services, Management Information System (MIS) and other capacity building activities for microfinance providers, service providers to the sector, and staff and Board of the facility itself.6 The second sub-component will support the operating costs of the South Sudan Microfinance Development Facility (SSMDF) for a period of 3 years in an amount of US$0.9 million. The SSMDF is a microfinance Apex institution established in 2009 under the MDTF-SS funded PSD project with a corporate structure equivalent to a state owned enterprise, and serves as a wholesale microfinance body for South Sudan.

23. Component 2: Promote Micro-Entrepreneurship (US$ 4.4 million). This component will catalyze entrepreneurship through a Business Plan Competition (BPC) for existing businesses and start-ups. A total of US$3 million will be earmarked to support at least 100 entrepreneurs with sub-grants in the amount of up to US$20,000 to be used as block collateral for loans provided by commercial banks. Another US$1.4 million will be allocated for the preparation, technical assistance and M&E for the BPC. Under this component, some of the loans will be used to finance activities across different sectors such as light manufacturing, services, poultry farms, and agriculture.

24. Component 3: Mobile Payments and Trade Integration Policy Support (US$ 0.3 million). This component will support the development of a regulatory framework for mobile banking and payments and provide long term advisory services on trade harmonization for South Sudan, including consideration of South Sudan’s potential membership to the East African Community (EAC).

25. Component 4: Institutional Strengthening of the South Sudan Business Forum and Project Management (US$ 1.5 million). This component will finance the activities and operating costs of the Project Coordination Unit (PCU) which is responsible for coordinating and monitoring activities implemented by the project. It will also support technical assistance and training to build the institutional capacity of the MCII staff responsible for the development of the Private Sector in South Sudan.

26. This component will also cater for the operating and staffing costs of the South Sudan Business Forum (SSBF), a Public-Private Sector Development Forum, established in 2009, under the MDTF-SS PSD Project.

Eligibility for Processing under OP/BP 8.00

27. Despite becoming independent, a number of issues are still being negotiated in South Sudan, including the distribution of assets and oil revenue, external debt, citizenship, freedom of movement, the North-South border, and the status of Abyei. As a result, there is a continuing need for peace building to overcome the residue of conflict, with continuing security challenges

6 The modalities in which SSMDF will provide TA to MFIs are presented in Annex 1A

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within South Sudan and some disaffected militia leaders. These factors combine to create a highly fragile, vulnerable transition.

28. This operation is aligned with OP 8.00 as it supports the restoration of means of production and economic activities, and facilitates peace building during the crucial initial stages of building capacity for longer-term reconstruction, disaster management, and risk reduction.

Consistency with Country Strategy (CAS or ISN)

29. The activities proposed under the project are consistent with the Interim Strategy Note (ISN) that was developed for South Sudan while it was part of Sudan, and presented to the Board in April 2008. The main objective of the Interim Strategy was to support the Government of National Unity (GoNU) and GoSS to sustain peace and help reduce conflict by meeting the commitments contained in the CPA, Darfur Peace Agreement (DPA), and Eastern Sudan Peace Agreement (ESPA), particularly in the areas of governance, basic services, and pro-poor economic growth—especially in the war-affected and marginalized areas. Fostering private sector growth is a key activity of this agenda. While much of South Sudan’s recent economic growth has been due to increasing oil production, sustained growth over the longer term requires that other sources of growth can take the lead – particularly the private sector. Growth of the infant private sector is contingent on improving a more stable investment climate and increased capacity of the private sector itself.

30. As mentioned in Section B, a new Interim Strategy Note for South Sudan will be presented soon after it becomes a member of the World Bank, currently scheduled for the third quarter of 2012. During the time of transition, SSTTF will support operations focused on improving access to health services, especially in rural areas, economic diversification and enhancing rural livelihoods, improving roads while targeting high agricultural production areas and private sector development by supporting new entrepreneurs and access to micro-finance.

31. The project’s development objective of improving access to finance for private sector development and increasing employment opportunities in South Sudan is aligned with SSTTF’s objectives, as it will promote micro-entrepreneurship and enhance access to finance through MFIs. The project is also aligned with the operationalization of the 2011 WDR7, which focuses on operations targeting job creation and private sector development, which can make a quick, visible and a sustained dent in unemployment until private sector employment accelerates. Lastly, the activities under this project cover two core areas of the World Bank Africa Strategy: competitiveness and employment, and vulnerability and resilience.

Expected Outcomes

32. The expected outcomes of the project include:

(a) At least 250 jobs generated by enterprises supported by the BPC sub-grants (b) At least 50,000 people with access to finance through targeted MFIs (c) At least 100 entrepreneurs with access to finance through the BPC

7 Operationalizing the 2011 World Development Report: Conflict, Security, and Development

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(d) A regulatory framework for mobile banking and payments D. Appraisal of Project Activities

33. This project is being prepared under OP 8.0 to address the immediate reconstruction needs of South Sudan in a post-conflict situation and environment that lacks basic economic data.

Technical Aspects

34. Component 1: Establish Commercially-Viable Microfinance Institutions. There are two sub-components under this component. The objective of the first subcomponent (US$1.9 million) is to accelerate the creation of a viable microfinance sector that provides sustainable financial services to the currently unbanked, economically-active poor. The MFIs will provide micro-lending to micro-borrowers for various commercial activities that are concentrated on trade and agricultural activities.8 This will be achieved through support of green-field MFIs and the expansion of microfinance services throughout South Sudan and will be implemented by SSMDF, the Apex body for MFIs. Technical and financial support will be provided to strengthen the institutional and financial capacity of microfinance providers that have the potential to operate on a sustainable basis. Technical and financial support will strengthen the institutional and financial capacity and performance of diverse MF providers. This component will provide funding for institution-building and delivery of microfinance services, as well as financing for training and technical consulting services and other capacity building activities for microfinance providers, service providers to the sector, and staff and Board of the facility itself.

35. In the MDTF-SS PSD project, the SSMDF was established with a corporate structure equivalent of state owned enterprise, governed by a Board comprising public, private and civil society representatives, and became fully operational in July 2009. The SSMDF board is chaired by the Ministry of Commerce, Industry, and Investment. As a continuation of their operations in South Sudan, the SSMDF will be responsible for the implementation of activities under this sub-component which includes supporting the creation of new MFIs as well as downscaling commercial banks. The funds provided to MFI borrowers would be used for expenditures on goods and services for use in their businesses.

36. During the last two years, SSMDF has facilitated over 35,000 beneficiaries, through financing and technical assistance support to MFIs. SSMDF has also carried out a promotional campaign on local radio and TV and in seven states of South Sudan where there is limited or no microfinance activity. It has developed eligibility criteria for local and international MFIs to access funding, and prepared standard forms and templates for SSMDF operations, credit and accounting manuals, and SSMDF chart of accounts. SSMDF has installed an integrated system for accounting and loan tracking, supplied by FERN SOFWARE based in Northern Ireland, and has developed a sub-loan monitoring tool to track the clients of the Partner MFIs in order to create a basis for assessing the impact of microfinance on the clients.

37. SSMDF will be responsible for the allocation and management of the proposed US$1.9 million in Loan capital (US$1.5 million) and Technical Assistance (US$0.4 million). This 8 The bulk of MFI’s portfolios in South Sudan is concentrated in trade and services.

9

funding will provide sub-grants for institutional building and delivery of microfinance services, as well as training and other capacity building activities for MFIs. Loan capital will be undertaken on competitive market rates and priority will be given to MFIs that are expanding geographical coverage, targeting the underserved clients and to particularly challenging clients in the rural areas, which mostly work in the agricultural sector. The project will also support creation of new MFIs and rural credit societies and development of Rural Credit Societies (RCS) into MFIs. The criteria for awarding the grants will be based on technical assessment under the core areas of good governance, provision of capacity building to clientele, financial performance and sustainability, extent of outreach (underserved populations), good business plan, and quality of strategy. The selected interventions in the sector will be approved by the Finance and Investment Committee of SSMDF and the Board of SSMDF.

38. At the moment, SSMDF is able to operate without substantial external technical support, and has the following in place: a capable South Sudanese Team Leader; a well-functioning, respected, autonomous Board of Directors; staff with increasingly diverse and sophisticated skills to meet the evolving needs of the South Sudan microfinance sector; and the capacity (policies, procedures, staff knowledge) to manage more commercially-oriented services.

39. The second sub-component of the project will cover the operating costs of the SSMDF for the three-year period (US$0.9 million). This sub-component will support the day to day running of the SSMDF and will cover the costs of staff, recruitment of consultants, monitoring and evaluation, the costs associated with Board meetings and training.

40. Component 2: Promote Micro-Entrepreneurship. This component will aim to strengthen and build entrepreneurship in South Sudan through a Business Plan Competition (BPC) that will finance at least 80 existing businesses and 20 start-up businesses. The wealth of South Sudan will greatly depend on the development of its human resource, one of the youngest populations in the world. Large numbers of young South Sudanese men and women, including returnees, are currently facing an employment market with limited absorption capacity. To address this challenge, the program will support: (a) entrepreneurship awareness creation; (b) run the BPC to allow new and active South Sudanese entrepreneurs including youth, ex-combatants and women to compete for business support funds; and (c) provide relevant training in business development skills. The loans will provide funding for diverse business activities some of the loans will be used to finance activities across different sectors such as light manufacturing, services, poultry farms, and agriculture.

41. On the BPC, after the initial screening, the successful applicants will be requested to develop business plans and thereafter be trained in business development skills. The successful winners will be provided with a sub-grant of up to US$20,000 that will be used as a block collateral for a loan and businesses monitored to ensure that the objectives of this component are achieved. In the event that the business is successful, the business owner will receive the collateral to be used as equity in the business or as collateral for an additional loan. The institutional arrangements and agreements with commercial banks were established in the first round of the BPC. It is expected that at least 100 active entrepreneurs including youth, men and women will be selected in the second round of the BPC. Outreach and training for the BPC winners is estimated to cost US$200,000 and an additional US$200,000 is earmarked for M&E of these sub-grants.

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42. A tripartite agreement (the Ministry of Commerce, the Commercial Bank and the Borrower), for the business plan competition has been prepared under the previous PSD project and will be signed among the three parties. The tri-partite agreement outlines the terms of the loan that will be extended to the borrower and the responsibilities of the three parties, the MCII (guarantor), the Commercial Bank and the awardee/borrower. On that basis, MCII will provide a block collateral (the sub-grants) to the commercial bank, against which, the commercial bank will extend the loan(s) to the entrepreneur. Upon full repayment, the entrepreneur has the option to use the collateral (sub-grant) for a new loan or to take the collateral as equity for his/her business.9 The objective is that the borrowers will develop a credit history with the commercial bank and will, in the future, begin to access commercial bank funds without the need for 100 percent collateral, but rather based on his/her credit history and performance in servicing the loan. Thus, the commercial bank will not bear any credit risk for these transactions.

43. The BPC Program account will receive the required funds to be used as collateral once the BPC is concluded and the entrepreneurs are selected and trained. The commercial bank will not make any loans prior to the BPC account having the required level of collateral for the entrepreneurs. The commercial bank will have the responsibility to ensure that all documentation is complete prior to making the loans. The borrower has a period of six months to provide all the relevant documentation, otherwise they forfeit the award.

44. Under the MDFT-SS funded PSD project, the BPC was initially planned as pilot grants to provide seed capital to potential South Sudanese entrepreneurs with business plans judged to be viable. However, in order to respond to the GoSS’s concerns about possible entrenchment of a hand-out mentality in the population, an innovative approach was introduced mid-way during the implementation of the MDTF-SS funded PSD project in order to create a credit-saving culture among South Sudanese as a transition from donor dependency. Under the arrangement, a Memorandum of Understanding (MOU) was signed with Kenya Commercial Bank-Sudan (KCB) and the Ministry of Commerce, Industry, and Investment (following a vetting exercise of the existing commercial banks in South Sudan) to provide loans (in the form of sub-grants) to the entrepreneurs with credible business plans using the grant of US$20,000 as collateral for their (KCB’s) financing. In the event the entrepreneur repays the loan successfully, then he/she has the option to take the U$20,000 collateral as a grant to use for expansion of their business or take another loan from the commercial bank while still using the US$20,000 as block collateral. Forty five entrepreneurs were selected in the pilot round of the BPC. The objective is that the successful entrepreneurs will develop a credit track record with the commercial banks through these interactions and be able to access additional credit in future. The entrepreneurs would also, in the process, develop a banking culture and receive guidance from KCB Credit Officers to learn how to keep records for their operations and build their confidence.

45. The BPC will finance entrepreneurs in all ten states, with important consideration to women, returnees, ex-combatants, and agricultural activities. During the MDTF-SS funded PSD project, the BPC was able to fund entrepreneurs in all states, mostly in the agricultural sector (64 percent of sub-grants), and women representing over half of the winners. Furthermore, the criteria to select BPC winners will take into consideration the spatial coverage of the proposed South Sudan Rural Roads Project (SSRRP).

9 For a detailed description of the flow of funds under the BPC refer to Annex-5

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46. To ensure transparency in the selection of the qualifying business plans, the selection committee will be expanded in this project to include representatives from the public and private sectors (finance) and civil society. Furthermore, the project will support a more diligent monitoring and evaluation system that can provide technical support to BPC award winners during the implementation of their business plan. In order to accomplish this, the project will hire an independent consultant/firm to develop the criteria for the BPC, provide training in the preparation of the business plans, and follow up with the winners providing technical support and monitoring the outcome, especially measuring generated jobs.

47. Given the experience of the first round of BPC and the high risk associated with start-up businesses, 80 percent of the grants will be dedicated to support existing businesses and 20 percent for start-ups. The funds provided as sub-grants / loans to entrepreneurs would be used for expenditures on goods and services for use in their businesses.

48. Component 3: Mobile Payments and Trade Integration Policy Support. The objective of this component is to support the development of a regulatory framework for mobile banking and payments, and advisory services on Trade Integration Policy at the Ministry of Commerce, Industry, and Investment, including consideration of South Sudan’s membership in the East African Community (EAC).

Sub-component 3.1: Mobile Payments Regulatory Framework

49. The development of the regulatory framework envisaged in this component, will allow mobile operators and banks to provide the mobile payments, allowing people to make payments more quickly and affordably than with methods currently available without posing systemic risks to the financial system in South Sudan. The system can also allow customers to send money home and make a variety of other payments without a bank account. Mobile payments will facilitate loan repayments by MFIs. This eliminates the time loan recipients use to spend traveling to urban areas to deposit cash into their MFI bank account, allowing them to spend more time in productive activities, which is especially important in a country as vast and disconnected as South Sudan. Mobile payments will also facilitate transfers under Community Driven Development (CDD) operations.

Sub-Component 3.2: Support for Trade Integration Policy

50. A diagnostic trade integration study was recently completed as part of South Sudan's participation in the Integrated Framework for Trade-Related Technical Assistance. The study has recommended a program of training for Government and Chamber of Commerce officials on international trade issues. A long term expert will be recruited to provide support to MCII on Trade Integration Policy and South Sudan’s prospects for integration into the EAC.

51. Component 4: Institutional Strengthening of the South Sudan Business Forum and Project Management. The objective of this component is to support the Project Coordination Unit (PCU), which is responsible for coordinating and monitoring the activities implemented under components 1, 2, and 3. The implementation arrangements for the PSD project have generally worked well and the same would be used for this project with some modifications. The

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PCU will be further strengthened with technical assistance, including training on M&E and project management.

52. This component will also provide support for SSBF, a public-private dialogue forum. This subcomponent will continue to support activities of the Sector Working Groups between the public and private sector around the formulation of the policy agenda while relying on the support of the secretariat that will provide technical assistance to both private and public sector institutions, organize meetings both within the private institutions and Government, conduct research on private and public sector issues which can be discussed in the Forum. This will yield more result oriented and focused discussions on policy areas affecting both the public and private sector and provide constructive feedback on policy responses. Funding has been provided under the project to finance the salaries of a small secretariat of the SSBF, as well as administrative and operational expenses. This component will be implemented in close collaboration with International Finance Corporation (IFC), the Netherlands, and GoSS, which currently provide technical assistance to SSBF.

53. More detailed information on the project components is provided in Annex 1.

Project Cost

54. The total cost for the project is US$9 million. The breakdown of expenditure categories are as follows:

Breakdown by Components

Expenditure Category Cost (US$ million)

% of Total Project Cost

Component 1: Establish Commercially-Viable Microfinance Institutions a. Sub Grants to provide commercial and technical support to MFIs b. Operating Costs of SSMDF

Subtotal

1.9

0.9 2.7

30 Component 2: Promote Micro-Entrepreneurs. a. Sub-Grants under Business Plan Competition b. BPC Preparation and M&E

Subtotal

3.0 1.4 4.4

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Component 3: Mobile Payments and Trade Integration Policy Support

0.3 3

Component 4: Institutional Strengthening of the South Sudan Business Forum and Project Management.

1.5 17

Grand Total 9.0 100.0

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Breakdown by Expenditure Category

Category

Amount of the Grant Allocated (expressed in USD)

% of Expenditures to be Financed (inclusive of Taxes)

(1) Goods, non-consulting services, Workshops and Training, Operating Costs and consultants’ services under Parts 2,1, 3.2, 4.1 and 4.2 of the Project

3,030,000 100

(2) Goods, non-consulting services, Workshops and Training, Operating Costs and consultants’ services under Part 1.2 of the Project

870,000 100


200,000 100

(4) Goods, works and services under Sub-Grants under Part 2.1 of the Project

3,000,000 100


1,900,000 100 t

TOTAL AMOUNT 9,000,000

Institutional Aspects

55. The MDTF-SS funded PSD project has been operating in an overall weak capacity country environment. However, ownership and commitment of the private sector development program by MCII is strong on account of the project having delivered visible results. As a result, the implementation arrangements for the first PSD project have worked well and the same would be maintained and further strengthened under this project.

56. At the administrative level, the Project will be led by the Directorate of Private Sector Development, MCII, who will provide overall supervision of the PCU. At the operational level, the day-to-day coordination and management of all the components of the Project will fall under the responsibility of the PCU, which is headed by a Project Coordinator and is also housed in the MCII. In addition to providing overall supervision of the Project, the Directorate of Private Sector Development will serve as the Implementing Agency (PIU) for the BPC (component 2), the Trade Integration Policy sub-component (component 3.2), and the SSBF sub-component (component 4). The Central Bank of South Sudan (BoSS) will serve as the Implementing Agency for the microfinance component (Component 1), and the mobile payments sub-component (component 3.1). Please refer to Diagram 1 for the oversight and implementation governance structure of the project.

57. The PCU will consist of a Project Coordinator, a Project Accountant, a Procurement/M&E Officer, an Environmental Specialist, and a driver. The other PIUs will include: (i) a Team Leader, who is a staff member of the agency which manages the day-to-day project activities and has been the point of contact in developing the project; and (ii) an Administrative Assistant, hired by the project, who supports administrative management of the particular project component. The Project Office constructed under the MDTF-SS funded PSD

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project and all the available office equipment and vehicles will continue to be utilized during the implementation of this project.

Diagram 1. Oversight and Implementation Governance Structure 58. With respect to the flow of funds for the sub-grants, a subsidiary grant agreement will be signed between the MCII and the Bank of South Sudan. The Bank of South Sudan will manage the funds of SSMDF and will make disbursements on the basis of agreed documentation. With respect to the sub-grants for the BPC, the MCII will sign a Memorandum of understanding with the commercial banks and the awardee/borrower, outlining the terms and conditions of the management of the sub-grants.

59. The Project Implementation Manual (PIM) will determine specific implementation modalities, roles and responsibilities, terms of reference and membership of the bodies involved in oversight and management of the project. More detailed information on implementation arrangements is provided in Annex 7.

Environmental and Social Aspects

60. The proposed project has four components. Component 2 supports catalyzing entrepreneurship through a BPC for existing businesses and start-ups to conduct various activities across different sectors such as commerce, light manufacturing, services, poultry farms, and agriculture. These expanded activities do not raise the environmental category of the project but trigger the Environmental Assessment (OP/BP 4.01) and the Pest Management (OP 4.09) safeguard policies, and is categorized under Environmental Category “B” partial assessment. No significant irreversible environmental and social impacts from project activities are envisaged. Furthermore, the project will not finance activities that may require land acquisition.

61. The draft Environmental and Social Screening Assessment Framework (ESSAF) is presented in Annex 9, identifying specific measures to be taken for the anticipated impacts. It

PSD Director

MCII

Project Coordination Unit

MCII

Component 2, 3.2: Promote

Micro-Entrepreneurship, and Trade Integration Policy

Support

MCII

Component 1, 3.1: Establish Commercially-

Viable MFIs, and Mobile Payments Policy

Support

BoSS SSMDF

Roles: Overall supervision of the PCU Stakeholder coordination Approval of work plans and budgets

Roles:

Project management and execution. Reporting functions Raising policy issues to the

attention of PSD Director and Undersecretary

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provides guidance on the approach to be taken during implementation for the selection and design of subprojects/proposed investments and the planning and mitigation measures, including consultation and disclosure requirements, to ensure due diligence and facilitate consistent treatment of environmental and social issues by all participating development partners. This includes proper pest management practices, selection of crops, use of organic pesticides, and improved agricultural practices. The ESSAF contains checklists, plans for pest management and mitigation management matrices for identified impacts in accordance with project activities.

62. The project will be guided by both the ESSAF, which will be finalized in consultation with the Government of South Sudan in order to address environmental and social impacts. Apart from the environmental and social assessment, the framework also includes all the relevant areas, including the need for and preparation of a Pest Management Plan. Therefore, the project will prepare an Integrated Pest Management Plan (IPMP) which will be consulted upon and disclosed in-country and at the InfoShop prior to actual implementation of the agricultural activities. Per the requirements of OP 8.00, safeguards documents will be prepared once emergency needs are addressed during project implementation.

63. The PCU currently has very limited capacity to implement an ESSAF and IPMP. The BPC will likely involve activities in various sectors, including agriculture, and some of which may have potential for creating environmental and pollution hazards to the nearby soil and water resources environment. It would be important for the PCU to have full information for such project component activities in order to monitor and mitigate such hazards and/or pollution effect. Consequently, the PCU will hire an Environmental Specialist for the project period to build the environmental management capacity, carry out primary monitoring, train other staff within the ministry and PCU, and work actively with the RSS-Ministry of Environment.

Lessons learned and reflected in project design

64. The project design draws on lessons learned from both inside and outside South Sudan, particularly from post-conflict countries. The overarching lessons learned and applied to the project design are: (a) project development objectives should be realistic, focused and achievable in the country, sector and implementing agency context; (b) project design should be simple and project components closely aligned with the PDOs; (c) to address the capacity, accountability and governance risks in a weak capacity and poor governance environment, the need for implementation support technical assistance should be carefully assessed; (d) motivation and sensitization of staff of implementing agencies in a gainful participation in project activities is one of the key ingredients for successful project performance and sustainable capacity building; and (e) in a post-conflict environment, reconstruction effort should target interventions that yield quick returns, with appropriate attention to putting in place basic building blocks to support transition from emergency recovery to medium to long term reconstruction and development.

65. This project builds on the successful partnerships nurtured over the last four years with the public and private sector institutions. In addition, the core implementation structure and the staffing now exist to implement this proposed project.

66. The project will provide a more diligent monitoring and evaluation and business development system that can provide technical support to BPC winners during the

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implementation of their business plan. Current BPC figures, show that about 44 percent of the winners are repaying the loan. Given that the first BPC was supporting start-ups, part of the low repayment rate might be due to the natural high risk of start-ups together with the post-conflict environment of South Sudan. Moreover, the previous BPC selection committee did not include representatives from the private sector, which may have influenced the support of businesses that had good intentions but were not economically grounded.

67. Based on experience from the first BPC, the selection committee will be expanded in the project to include representatives from the public and private sectors and civil society. This will ensure a more thorough evaluation of business plans. Moreover, given the level of risk in South Sudan, 80 percent of the grants will be dedicated to support ongoing businesses which have a smaller chance of failure, and the remaining for start-ups. Lastly, given the data limitations found in the current BPC, the project will support a more diligent monitoring and evaluation system by hiring the services of an independent agency.

68. There are no exceptions to World Bank policies.

E. Implementation Arrangements and Financing Plan

69. The implementation arrangements of the MDTF-SS funded PSD project described earlier will continue under the project with some adjustments. At the operational level, the project is led by MCII, particularly, by its Directorate for Private Sector Development. The PCU is housed in the MCII.

70. The PCU will include a Project coordinator, a Project Accountant, a Procurement/M&E Officer, an Environmental Specialist, and a Driver. Given the low level of procurement in this project, the procurement officer will also play the role to monitor and evaluate the progress of the project. A project office has already been established within the MCII compound for use by PCU/PIU staff and consultants supporting project components, as well as meetings between project teams and stakeholders.

71. The arrangements from the proposed project will differ from MDTF-SS project on the following: the PCU will include an environmental specialist to assess safeguard issues related to BPC; SSMDF will be assisted by international consultants rather than the Frankfurt School of Finance and Management; and an independent consultant/agency will carry the preparation of the BPC, including its monitoring and evaluation.

Project Reporting

72. Annual project reviews will be conducted in the first six months of the calendar year. The annual review will discuss project progress, performance, outcomes and implementation issues, and include reporting on the monitoring indicators. The PCU will submit quarterly project status reports, including financial and technical reports. These reports will measure disbursement against targets, and monitor the operating costs of PCU and PIUs, by providing a detailed breakdown of expenditures made during the previous quarter. The PCU will also prepare and submit to the Association, not later than November 1 of each year, beginning in the year 2012, the annual work plan and budget for the project for the subsequent year. The report shall include a procurement plan for activities planned the following year.

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73. A Project Mid Term Review will be conducted 18 months after Project Effectiveness with the objective of assessing implementation progress and achievement of PDO and intermediate outcomes. The Mid Term Review will be the basis for restructuring the project design if required to respond to lessons learned from project implementation and ground realities at that point of time. The Mid Term Review reports are prepared by the PCU at least three months before the agreed review date. The Implementation Completion and Results Report (ICR) will be prepared after completion of the Project.

Monitoring and Evaluation

74. The monitoring and evaluation system for the Project will be based on the agreed Results Framework as in Annex 2. M&E will be the responsibility of the PCU, which will collect and compile data and provide the M&E report of the project. By Project Effectiveness, baseline data and target values for all the agreed indicators will be verified and confirmed by the PCU. The primary monitoring mechanism will be semi-annual reports and annual reports prepared by the PCU. The reports will assess achievements against the baseline values for all indicators defined in the results framework.

75. More detailed information on implementation and monitoring arrangements is provided in Annex 7.

Project Costs and Financing Plan

76. The cost of the three-year project is estimated at US$9 million. The project would be financed by a Grant from SSTTF.

Financial Management, Disbursement and Audit Arrangements

77. Financial Management (FM) for the grant will be managed initially by the Project Financial Management Unit (PFMU) at the Ministry of Finance, while the FM capacity in the ministry is being developed with support from the project; subsequently, the FM would be taken over by the Ministry. On-going review and supervision reports of the PFMU indicate that they have the required capacity to carry out the FM for the project. A qualified Project accountant would be engaged for the project to work within the PCU and in the first year will work closely with the PFMU and PCU for effective project implementation. In addition, two accounting staff in MCII would be assigned to work with the project. The audit for the project would be carried out by the Audit Chamber with support of an External Audit Agent (EAA) which would be engaged with funds partly contributed by the project. The Financial Procedures Manual used for the PFMU will be updated and included in the PIM for the project. Detailed FM arrangements are documented in Annex 5. The Project Financial Management Unit (PFMU) provided financial management responsibilities for the earlier PSD project and its performance has been assessed as satisfactory. Its systems and staff are all well established and trained, and able to prepare the required project financial reports (IFRs) on time. The PFMU has also ensured that project financial statements are prepared and the required audits carried out within the required due date. There are no outstanding financial management compliance issues. Based on the current systems and assessment, the FM risk is assessed as Moderate.

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Disbursement Arrangements

78. Disbursement from the Grant will use advances, reimbursement, direct payment, and payments under Special Commitments including full documentation or against statements of expenditures, as appropriate. PFMU/Project Accountant shall submit withdrawal applications to the World Bank. Expenditure reporting will be based on Statement of Expenditures (SOEs), and supporting documents above certain thresholds will be requested. A flexible ceiling on advances will be authorized for the project, to be derived from rolling three-month expenditure forecasts. Detailed disbursement arrangements will be documented in the Disbursement Letter.

79. Disbursement of funds for sub-project activities under Component 1 may be made through the Designated Account and documented through Statements of Expenditures that indicate the identity of the recipient MFI Borrowers so that a clear audit trail is provided. Actual end use of funds by MFI Borrowers would be considered expenditure and would be accounted for, reported and documented for disbursement purposes.

80. For sub-project expenditures paid for through Sub-grants under component 2, funds for block collateral would be disbursed as a Direct Payment into a segregated account (the Business Plan Competition Program Account) in the name of MCII. The withdrawal application should be supported by a copy of the MOU with the commercial bank, a statement of intended beneficiaries as winners of the Business Plan Competition, and the date of the sub-loan agreements with each selected beneficiary, duly certified by MCII and acceptable to the World Bank. Subsequent use of these funds for eligible expenditure and the balances outstanding through the project implementation period would be reported by the PCU to the World Bank as part of Interim Financial Reports and be subject to internal and external audits as stated elsewhere in this document. Any balances remaining outstanding and unspent at the end of the project period would be refundable by beneficiary entrepreneurs to the project and subsequently to the World Bank.

81. Financial management arrangements for the project are detailed in Annex 5.

Procurement Arrangements

82. All procurement activities will be carried out by the Project Coordination Unit (PCU) housed in MCII. The project procurement activities are limited to the selection of a few individual consultants/firms and the procurement of goods (computers, office equipments and supplies) for the implementing units. The total amount of the consultants’ services and goods to be financed from the proceeds of the proposed project will not exceed US$2 million.

83. Procurement for the proposed project will be carried out in accordance with the World Bank’s “Guidelines: Procurement of Goods, Works and Non Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011 and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” dated January 2011, the emergency procedures described in OP /BP 8.00, and the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006 and

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revised in January 2011 - as stated in the grant agreement, Schedule 2, section C, together with other provisions stated in the grant agreement.

84. The PCU prepared a simplified procurement plan (SPP) per requirement of OP/BP 8.00 which covers the first 12 months of project implementation. The SPP will be updated on a semi-annually basis or as required to reflect actual project implementation needs. Regular financial monitoring reports would present procurement activities in an appropriate degree of detail

85. The World Bank procurement capacity analysis concludes that the risk level is substantial, mainly for reasons related to the country environment. As a result, the recommended prior review thresholds for the project would be US$500,000 for goods, US$200,000 for consultant firms, and US$100,000 for individual consultants. All Terms of Reference (ToRs) regardless of contract amount and all single-source selection of consultants with firms, if any or with individual for assignments estimated to cost above the equivalent of US$50,000 will be subject to prior review by the World Bank.

Bank Implementation Support and Supervision Arrangements

86. Given the unique challenges facing the World Bank and the rest of the international community to deliver development assistance to South Sudan, the World Bank has developed and implemented a strategic approach to addressing governance, accountability, and weak capacity issues while assisting the government in managing development aid for results on the ground. The results and risk management frameworks for the World Bank's activities in South Sudan comprise three prongs:

(a) Help the government establish and operate appropriate systems for public financial management, public procurement, and internal and external audit;

(b) Ensure "smart" project design to address the capacity and Governance and accountability (GAC) risks in the operating environment; and

(c) Pursue a new paradigm for portfolio supervision that focuses on providing greater implementation support to clients for getting results on the ground and risk-based fiduciary oversight arrangements.

87. The results and risk management frameworks will guide the World Bank’s supervision of the project.

88. As security in parts of South Sudan is volatile, the World Bank’s ability to support the project implementation in some parts of the country is limited. To deal with this constraint, the project task team will adopt the following approach: (i) the HQ–based TTL and the Juba based-PSD specialist will maintain a continuous proactive dialogue with the project counterpart to help the client address implementation issues, quickly resolve problems and build capacity; (ii) close coordination with the Post-Conflict Hub in Nairobi; (iii) the World Bank task team will have proper skill mix and specialized expertise to provide effective implementation support; (iv) the South Sudan-based fiduciary staff will provide regular fiduciary oversight and capacity building support; (v) full project supervision will be carried out every six months with reporting to the MCII and World Bank management; and (vi) quarterly updates from PCU in procurement, financial management, and over project progress.

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89. Closing Date: November 30, 2014 would be the closing date of the SSTTF Grant. The implementation of all components will commence in project year one and continue until the end of the project.

F. Key Risks and Mitigating Measures

90. Based on the experience of ongoing projects in South Sudan, the major challenges that the project will face are related to security, technical capacity, and weak governance. The overall risk rating for the project is assessed to be “Substantial”. The following table summarized some of the key risks, mitigation measures and the corresponding ratings before mitigation. Details are provided in the Operational Risk Assessment Framework (ORAF) in Annex 4.

Risks Risk Mitigation Measures Risk Rating before Mitigation

Project Stakeholder Risks: Reduced ownership GoSS may want to include

additional components in the project, such as support for a PPP law and construction of the Juba market.

Highlight the positive outcomes of the MDTF-SS funded PSD project components that will continue to be supported under the project using successful stories.

Continue consultation with Government, and look for additional funding sources to support such components, such as PPIAF and the next FPD project.

Moderate

Implementing Agency Risks: FM Risks: FM system is weak. Capacity

is low to prepare budgets that lay down physical and financial targets in sufficient detail to monitor subsequent performance and to properly account and report on funds utilization.

The PFMU will support the PCU in the first year of implementation to set up a strong Financial Management system. A qualified Project Accountant would be engaged; 2 FM Accountants in the ministry would also be assigned to work with the project to develop the capacity in the ministry. The Audit Chamber would audit the project activities with support from an External Audit Agent.

The World Bank will provide continuous assistance to ensure that project staff is able to prepare adequate budgets, monitor progress, and adjust when necessary.

The PCU will be required to provide monthly FM reports to ensure close supervision and monitoring of budget.

Substantial

Capacity Risks: Inadequate number of

qualified staff and low technical and managerial skills in MCII could lead to delays in implementation.

There is a likelihood of trained staff leaving the

The World Bank will promote greater delegation of decision-making power to the PCU. In doing so, the World Bank will provide technical assistance including M&E.

The World Bank will provide ongoing training to minimize the effects of staff turn-over.

Substantial

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Risks Risk Mitigation Measures Risk Rating before Mitigation

government due to unsatisfactory remuneration and work environment.

Governance Risks: Changes in leadership of

MCII can reduce ownership of the project. Furthermore, current support under the MDTF-SS funded PSD project sometimes did not trickle down to other staff.

Team will dialogue early with the Minister and Under Secretary on project’s objectives and implementation structure to encourage ownership.

Moderate

Project Risks: Design Risks The performance of BPC

winners may not be as good as expected. During the MDTF-SS funded PSD project, the performance of some BPC winners was questionable.

The weak performance of some BPC winners was due to the nature of startups in South Sudan and lack of an adequate M&E support system in place. As a result, the project will now focus a greater proportion (80 percent) on ongoing business, while supporting and monitoring closely the performance of startups.

The performance of BPC winners may not be as good as expected. During the MDTF-SS funded PSD project, the performance of some BPC winners was questionable.

Substantial

Social and Environmental Risks The BPC may have awardees

using the loans on agricultural and other activities that may trigger social environmental safeguards.

Early during project implementation, the Client will undertake environmental and social assessments and establish mitigation measures.

The World Bank will also guide the development of the BPC selection criteria in order to minimize the likelihood of potential adverse impacts related to environmental and social safeguards.

Moderate

Delivery Monitoring & Sustainability Risks Result measuring under the

MDTF-SS funded PSD project has proven challenging given the absence of an M&E system.

The Recipient and Bank will support the use of the M&E system currently being finalized under the ongoing MDTF-SS funded PSD project to measure progress.

Training and TA will be made available if monitoring and evaluation weaknesses are detected.

Substantial

G. Terms and Conditions for Project Financing

91. The proposed SSTTF financing will be provided on a grant basis. The SSTTF Grant would finance 100 percent of project expenditures, including taxes.

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92. A disbursement condition is proposed for Component 2, whereby no disbursements would be made for Sub-grants, unless the list of eligible beneficiaries is certified by MCII as winners of the Business Plan Competition, and a Memorandum of Understanding between MCII and a commercial bank, satisfactory to the Association, has been duly executed.

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Annex 1: Detailed Description of Project Components

REPUBLIC OF SOUTH SUDAN: Private Sector Development Project

Component 1: Establish Commercially-Viable Microfinance Institutions (US$ 2.8 million)

93. The objective of this component is to accelerate the creation of a viable microfinance sector that provides sustainable financial services to the currently unbanked, economically-active poor. This will be achieved through support of green-field MFIs and the expansion of microfinance services throughout South Sudan and will be implemented by SSMDF, the apex body for MFIs. The MFIs will provide micro-lending to micro-borrowers for various commercial activities that are concentrated on trade and agriculture.10 Technical and financial support will be provided to strengthen the institutional and financial capacity of microfinance providers who have the potential to operate on a sustainable basis. Technical and financial support will strengthen the institutional and financial capacity and performance of diverse MF providers. This component will provide funding for institution-building and delivery of microfinance services, as well as financing for training and technical consulting services and other capacity building activities for microfinance providers, service providers to the sector, and staff and Board of the facility itself. There are two sub-components under this component. The first sub-component will provide technical and financial support to MFIs, promoting the start up and expansion of microfinance providers and services throughout South Sudan. The second sub-component will support the operating costs of the South Sudan Microfinance Development Facility (SSMDF) for a period of 3 years.

94. In the MDTF-SS funded PSD project, the SSMDF was established with a corporate structure equivalent of state owned enterprise, governed by a Board comprising public, private and civil society representatives, and became fully operational in July 2009. The SSMDF Board is chaired by the Ministry of Commerce, Industry, and Investment. As a continuation of their operations in South Sudan, the SSMDF will be responsible for the implementation of activities under this sub-component which includes supporting the creation of new MFIs as well as downscaling commercial banks. The second sub-component of the project will cover the operating costs of the SSMDF for the three-year period (US$0.9 million). This sub-component will support the day to day running of the SSMDF and will cover the costs of staff, recruitment of consultants, monitoring and evaluation, the costs associated with board meetings and training.

95. During the last two years, SSMDF has facilitated financing and technical assistance support for MFIs that cover 45,000 individuals, through support to MFIs, including over 34,000 to women. SSMDF has also carried out a promotional campaign on local radio and TV and in seven states of South Sudan where there is limited or no microfinance activity. It has developed eligibility criteria for local and international MFIs to access funding, and prepared standard forms and templates for SSMDF operations, credit and accounting manuals, and SSMDF chart of accounts. SSMDF has installed an integrated system for accounting and loan tracking, supplied by FERN SOFWARE based in Northern Ireland, and has developed a sub-loan monitoring tool to track the clients of the Partner MFIs in order to create a basis for assessing the impact of microfinance on the clients.

10 The bulk of MFI’s portfolios in South Sudan is concentrated in trade and services.

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96. With regards to the microfinance sector in South Sudan, the SSMDF’s mandate includes:

Building expertise on best practice microfinance strategies and operations and provide business development services to support organizations in the microfinance industry such as consultants, trainers and auditors, regulators, and policy implementers;

Ensuring that the retail providers and support organizations have sufficient resources to build institutional capacity, through Technical Assistance tailored to the needs of the organizations;

Ensuring that funding and capacity-building is tailored, more focused, and implemented in such a way as to avoid distorting the market as the microfinance market becomes more commercial and competitive.

97. At the moment, SSMDF is able to operate without substantial external technical support, and has the following in place: a capable South Sudanese Team Leader; a well-functioning, respected, autonomous Board of Directors; staff with increasingly diverse and sophisticated skills to meet the evolving needs of the South Sudan microfinance sector; and the capacity (policies, procedures, staff knowledge) to manage more commercially-oriented services. The project will cover the operating costs of the SSMDF for the three-year period with an amount of US$0.9 million.

98. SSMDF will be responsible for the allocation and management of the proposed US$1.9 million in Loan capital (US$1.5 million) and Technical Assistance (US$0.4 million). This funding will provide sub-grants for institutional building and delivery of microfinance services, as well as training and other capacity building activities for MFIs. Loan capital will be undertaken on competitive market rates and priority will be given to MFIs that are expanding geographical coverage, targeting the underserved clients and to particularly challenging clients in the rural areas. The project will also support creation of new MFIs and rural credit societies and development of Rural Credit Societies (RCS) into MFIs. The criteria for awarding the grants will be based on technical assessment under the core areas of good governance, provision of capacity building to clientele, financial performance and sustainability, extent of outreach (underserved populations), good business plan, and quality of strategy. The selected interventions in the sector will be approved by the Executive Management committee of SSMDF and the Board of SSMDF.

99. Qualifying MFIs selected for assistance will be eligible to receive grants for loan capital, technical assistance, short-term operating costs, MIS and systems development, market research and new product development, staff training and capacity development, improving governance of MFIs and other purposes that contribute to extending financial services to targeted client segments and building sustainable institutions. Start-up organizations and new specialized microfinance providers are expected to receive more comprehensive support from the Facility than applicants with existing financial operations and infrastructure that are “downscaling” into the low-income market. For commercial and for-profit applicants, it may also be more appropriate to provide technical services than grants. For deposit-taking institutions, it will be critical to provide any financial assistance in a way that does not create disincentives to deposit mobilization. The Board will consider whether and when cost share requirements might be appropriate and adopt policies and procedures accordingly.

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100. Criteria for selection will also likely include portfolio-level considerations, such as ensuring adequate geographic coverage and diversity of provider types and financial services. Applicants will present a business plan indicating their anticipated performance targets and assistance needs. Facility staff will review the business and assistance plan, and negotiate changes as appropriate. The Board and/or the Finance and Investment Committee will approve all awards and contracts, based on the recommendation of management.

101. Awardees will sign a Performance Action Plan with the Facility, including the mutually agreed performance targets related to all key institutional areas, consistent with international best practices (e.g. IFRS and CGAP standards). Quantitative targets will be based on business plan projections. Institutional targets will focus on time-bound strategies to address key weaknesses within the institution. Awardees will report on, and Facility staff will monitor performance against these targets on a regular basis (e.g., quarterly). Facility staff will also make regular site visits to awardees.

102. Funds will be disbursed in tranches, with subsequent tranches dependent on meeting negotiated performance benchmarks and covenants in the loan agreements. While institutions may receive multiple awards, the Facility will be expected to adjust the size and composition of assistance (type of financing, mix between technical and financial assistance) over time, to better fit the stage of development of the awardee and the sector. The facility may also make grants to organizations that help develop effective demand for microfinance, for example, by helping low-income people develop viable livelihoods and supporting enterprise start-up and growth.

103. Technical Services for the sector as a whole. Beyond working with retail microfinance providers, the Facility will directly provide and contract out for training and technical assistance to South Sudanese service providers to the sector, such as trainers, consultants, and auditors. A critical requirement for the long-run financial and development performance of the sector is the availability of capable service providers, to reduce the dependence on foreign expertise.

104. On linkages with other donor activities in South Sudan, UNDP, UNCDF, and USAID provide financial and technical support to microfinance agencies. Their programs provide loans and grants to leading MFIs and financial services providers on a competitive basis. These funds are administered by the SSMDF.

Component 2: Promote Micro-Entrepreneurship (US$ 4.4 million)

105. The objective of this component is to strengthen and build entrepreneurship of the people of South Sudan through a Business Plan Competition (BPC) that will finance 180 existing businesses and 20 start-up businesses. The wealth of South Sudan will greatly depend on the development of its human resource, one of the youngest populations in the world. Large numbers of young South Sudanese men and women, including returnees, are currently facing an employment market with limited absorption capacity. To address this challenge, the program will support (a) entrepreneurship awareness creation; (b) run the business plan competition (BPC) to allow new and active South Sudanese entrepreneurs including youth, ex-combatants and women to compete for business support funds (c) provide relevant training in business development skills. The loans will provide funding for diverse business activities some of the

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loans will be used to finance activities across different sectors such as light manufacturing, services, poultry farms, and agriculture.

106. On the BPC, after the initial screening the successful applicants will be requested to develop business plans and thereafter be trained in business development skills. The successful winners will be provided with a sub-grant of up to US$20,000 that will be used as collateral for a loan and businesses monitored to ensure that the objectives of this component are achieved. In the event that the business is successful, the business owner will receive the collateral to be used as equity in the business or as collateral for an additional loan. The institutional arrangements and agreements with commercial banks were established in the first round of the Business Plan Competition. It is expected that at least 100 active entrepreneurs including youth, men and women will be selected in the second round of the BPC. Outreach and training for the BPC winners is estimated to cost US$200,000 and an additional US$200,000 is earmarked for M&E of these sub-grants.

107. The critical role of women. Women constitute over 60 percent of the workforce in the private sector and they play a critical role in productive entrepreneurship. There is a need to empower women to understand the basics of business and to become aware of their potential to enter the entrepreneurial sphere through formal or informal enterprise. Outreach efforts under the entrepreneurship program will be particularly focused on reaching women, in coordination with the Ministry of Gender Affairs and Community Based Organizations (CBOs) such as the Women’s Empowerment Program and Magwi County Women’s Association (currently involved in income generating activities such as brick making among other activities) and the South Sudanese Women Entrepreneurship Association, established after the first round of the BPC under the first PSD project funded out of the MDTF-SS.

108. Reintegration of ex-combatants. The successful reintegration of ex-combatants is a key factor for the stability of Sudan. Training is one of the most important issues since reintegration must meet political as well as socio-economic objectives. As market assessments in most countries emerging from armed conflict show that employment options for ex-combatants are extremely limited. Most demobilized soldiers will need training completed by support services and credit to start their business.

109. The second round of BPC would support a total of at least 100 entrepreneurs. In the first round of the BPC, the Ministry of Commerce negotiated with KCB-Sudan as the commercial bank that would manage the BPC. All banks were vetted against criteria that included branch outreach, financial performance and ability to manage the program etc. and KCB was determined as the only commercial bank meeting all criteria at the time. In PSDP, at least two commercial banks are expected to be part of the project based on their branch coverage and experience with microfinance.


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111. To ensure transparency in the selection of the qualifying business plans, the selection committee will be expanded in this project to include representatives from the public and private sectors (finance) and civil society. Furthermore, the project will support a more diligent monitoring and evaluation system that can provide technical support to BPC award winners during the implementation of their business plan. In order to accomplish this, the project will hire an independent consultant/firm to develop the criteria for the BPC, provide training in the preparation of the business plans, and follow up with the winners providing technical support and monitoring the outcome, especially measuring generated jobs.

112. Given the previous experience of the first round of BPC and the high risk associated with start-up businesses, 80 percent of the grants will be dedicated to support ongoing businesses and 20 percent for start-ups.

113. A tripartite agreement (the MCII, the Commercial bank and the Borrower), for the business plan competition has been prepared under the previous PSD project and will be signed among the 3 parties. The tri-partite agreement outlines the terms of the loan that will be extended to the borrower and the responsibilities of the three parties, the MCII (guarantor), the Commercial bank and the awardee/borrower. On that basis, MCII will provide a block collateral (the sub-grants) to the commercial bank, against which, the commercial bank will extend the loan(s) to the entrepreneur. Upon full repayment, the entrepreneur has the option to use the collateral (sub-grant) for a new loan or to take the collateral as equity for his/her business. The objective is that the borrowers will develop a credit history with the commercial bank and will, in the future, begin to access commercial bank funds without the need for 100 percent collateral, but rather based on his/her credit history and performance in servicing the loan.

114. By removing the credit risk, the commercial bank(s) will only be charging their cost to administer the loan, which was pre-agreed with the commercial bank (currently 4 percent). On the block collateral, the Ministry will receive an interest rate (currently 1 percent), so the effective cost of administering the loan is 3 percent. In terms of accounting, the MCII will deposit with the commercial bank (KCB – Sudan Ltd, in the previous round) the amount of the block collateral into an interest bearing account, known as the Business Plan Competition (BPC) Program Account, at the commercial bank for an initial period of 36 months, which would be booked as a liability for the commercial bank, (Article 5 of the MOU), against which the commercial bank will extend the loans and book them as assets. In the event of full repayment, the commercial bank will release the funds to the entrepreneur, after discussing with them the option to take out another loan against the collateral.

115. The block collateral will be made once the Business Plan Competition is concluded and the entrepreneurs are selected and trained. Once complete, the Business Plan Competition Program account will receive the required funds to be used as collateral. The commercial bank will not make any loans prior to the BPC account having the required level of collateral for the entrepreneurs. The commercial bank will have the responsibility to ensure that all documentation is complete prior to making the loans. The borrower has a period of 6 months to provide all the relevant documentation, otherwise they forfeit the award.

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Component 3: Mobile Payments and Trade Integration Policy Support ($0.3 million)

116. The objective of this component is to support the development of a regulatory framework for mobile banking and payments, and advisory services on Trade Integration Policy at MCII, including consideration of South Sudan’s membership in the East African Community (EAC).

Sub-Component 3.1: Mobile Payments Regulatory Framework ($0.2 million)

117. Commercial banks and MFIs have to incur in high costs to reach the potential costumers in South Sudan. Currently, access to mobile connectivity is limited. In 2009, only 8 percent of the population (34 percent in urban and one percent in rural areas) lived within the range of a mobile signal. However, with five telecommunications providers and five million subscribers added since 2008, there is substantial potential for the long-run development of mobile banking and providing access to finance for poor rural communities isolated from financial systems.

118. Mobile banking and payments systems can provide efficient access to financial services, particularly for payments and money transfers. IFC is currently undertaking a mobile banking pilot study of 20,000 users and is working with two commercial banks in South Sudan to develop this service. The study will provide the basis for future engagement in mobile banking in South Sudan, especially after mobile connectivity is increased throughout the country.

119. The development of the regulatory framework envisaged in this component, will allow mobile operators and commercial banks to provide the mobile payments, allowing people to make payments more quickly and affordably than with methods currently available without posing systemic risks to the financial system in South Sudan. The system can also allow customers to send money home and make a variety of other payments without a bank account. Mobile payments can also be used by MFIs for loan repayment collection. This eliminates the time loan recipients use to spend traveling to urban areas to deposit cash into their MFI bank account, allowing them to spend more time in productive activities, which is especially important in a country as vast and lacking financial infrastructure as South Sudan.

Sub-Component 3.2: Trade Integration Policy Support ($0.1 million)

120. A diagnostic trade integration study was recently completed as part of South Sudan's participation in the Integrated Framework for Trade-Related Technical Assistance. The study has recommended a program of training for Government and Chamber of Commerce officials on international trade issues. A long term expert will be recruited to provide support to MCII on trade harmonization and South Sudan’s prospects for integration in to the EAC. The trade expert’s role, however, will not be limited to working with MCII. The expert will be expected to support, through MCII, comments on, and collaboration with, other Ministries developing policies that impact private sector development. Key deliverables for the trade expert include support and guidance for the development of a policy stance toward such key issues as the role of the state, good governance and anti-corruption, industrial development, trade promotion, tax policy and investment policy.

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Component 4: Institutional Strengthening of the South Sudan Business Forum (SSBF) and Project Management (US$ 1.5 million)

121. The objective of this component is to provide support to the Project including the PIUs through provision of financial, procurement and administrative services to ensure efficient coordination and implementation of the project over the three years. This will entail provision and financing of the current PCU staff hired in the MDTF-SS funded PSD project. They will continue to manage the day to day project activities while strengthening and mentoring the project implementation unit staff. This component which is located within the MCII will be accessible to staff serving all components, on the MCII premises including offices for the project teams and a meeting room for external stakeholders. The component will also finance maintenance and repair of equipment including vehicles, motorcycles, computers, furniture and operational costs etc. Support will also be provided for training project staff in administration, financial and procurement management.

122. The implementation arrangements for the MDTF-SS funded PSD project have generally worked well and the same would be used for this project with some modifications. The PCU will be further strengthened with technical assistance, including training on M&E and project management.

123. Support for the South Sudan Business Forum (SSBF) (Public-Private Dialogue Forum). In the process of developing the legal and policy framework for the Private Sector in South Sudan, it is critical to have close consultations between the public and private sectors. This is particularly important in light of the fact that the concept of federalism and participatory policy formulation are new to the South Sudan. As such, MCII has set up a well structured public-private dialogue mechanism that focused on resolving specific policy problems and raising the private sector‘s competitiveness in South Sudan.

124. This subcomponent will continue to support activities of the Sector Working Groups between the public and private sector around the formulation of the policy agenda while relying on the support of the secretariat that will provide technical assistance to both private and public sector institutions, organize meetings both within the Private institutions and Government, conduct research on private and public sector issues which can be discussed in the Forum. This will yield more result oriented and focused discussions on policy areas affecting both the public and private sector and provide constructive feedback on policy responses. Funding has been provided under the project to finance the salaries of a small secretariat as well as administrative and operational expenses. This component will be implemented in close collaboration with IFC, the Netherlands, and GoSS, which currently provide technical assistance to SSBF.

125. The Public-Private Dialogue Forum will be supported through the Secretariat. The Secretariat will provide support that will include the following;

Facilitation and coordination of working group meetings and the bi-annual Forum; Introduce new mechanisms and tools to enhance the current process of PPD; Increase accountability and cross sectoral support; Policy research to help participants formulate positions on policies;

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Provide capacity building support to enhance the inputs and outputs of the Forum process;

Provide advisory services and as when required in regard to the PPD process and its functions;

Provide appropriate outputs from the dialogue such as reports and summaries as agreed by the Forums participants;

Provide a mechanism for reaching out to the private sector to facilitate the participation of members of the private sector who may not yet be in a position to participate in the Chamber and or associations but whose input will be valued.

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Annex 1A: Project Description of Financial Sector Issues and Compliance with OP 8.30

REPUBLIC OF SOUTH SUDAN: Private Sector Development Project 126. The project design is fully compliant with World Bank operations policy on financial intermediary lending as contained in Operational Policy 8.30 (OP 8.30). The Project was cleared by the MSME Finance Service Line on September 7, 2011.

OP 8.30 applies to Component 1 - Establishing Commercially Viable Microfinance Financial Institutions since a line of credit (LOC) is included in the design. OP 8.30 does not apply to Component 2 - Promoting Entrepreneurship, since SSTTF funds do not need to be repaid by the ultimate borrowers and no SSTTF funds are being intermediated by the selected financial institutions. SSTTF funds used as collateral are held in a segregated account (the Business Plan Competition Program Account) in the name of the Ministry of Commerce, Industry, and Investment.

Macroeconomic Policies and Sectoral Conditions

127. In 2010, GDP in South Sudan was 30 billion Sudanese Pounds, equivalent to 13 billion USD, with a GNI of 19 billion Sudanese Pounds, equivalent to 8 billion USD. Exports of oil amounted to 71 percent of the total GDP in 201011.

128. Prior to independence, South Sudan’s responsibility for macroeconomic management was confined to controlling the expenditure side of fiscal policy. Management of oil production and exporting, together with government revenues, monetary policy and the exchange regime were managed from Khartoum.

129. Before the introduction of the South Sudanese Pound soon after the country’s independence in July 2011, South Sudan used the Khartoum-determined official exchange rate, though there was a de facto dual currency system with most merchants accepting both the dollar and the Sudanese pound. Foreign currency pressures have led to a depreciation of the pound (SDG 2.7 per dollar in March 2011 compared to SDG2.3 in January 2010) and a significant wedge has emerged between the official exchange rate and the market rate. In mid 2011 the street market for the U.S. dollar was around SDG 3.2 compared to about SDG 2.5 a year earlier, when the official exchange rate was considered artificially over-valued

Microfinance Sector

130. GoSS’s decision to remove Islamic banks from South Sudan in 2009 contributed to a huge gap between supply and demand for finance. Commercial banks from neighboring countries effectively sought to fill the gap by providing service in South Sudan. Since the end of 2008, banks from the neighboring countries of Ethiopia, Kenya, and Tanzania have been issued licenses to operate in South Sudan. Their clientele is still limited, however. In terms of trade finance, for example, KCB Sudan and Equity Bank issue the greatest number of letters of credit, but to a limited set of clients. Letters of credit are mainly issued to clients known to the bank and

11 National Bureau of Statistics (NBS). Release of First GDP and GNI figures for South Sudan by the NBS. August 11, 2011.

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backed by cash collateral in US dollars, and the bulk of these are issued to traders that supply the government (with the government acting as guarantor) for government procurement. Loans are only issued to select clients with significant assets, including land.

131. The microfinance sector in South Sudan is young and made up of weak institutions, which are in need of continued support to grow. More importantly, the existing MFIs will require substantial technical assistance in the form of operations support and training in the key areas of board governance, strategic planning, MIS and management training. Nearly all the MFIs report weak performance in terms of client outreach and even for some registering negative growth due to the lack of qualified personnel, resources and MIS. 132. The only bank providing microfinance credit in South Sudan is Nile Commercial bank. However, NCB has been declared as insolvent since 2009 and has not been actively lending. There are several microfinance institutions (MFIs) operating in South Sudan, as well as a number of small cooperatives/ rotating savings and credit associations (ROSCA’s). The three main MFIs consist of BRAC SS (a subsidiary of the Bangladeshi INGO of the same name), SUMI (the result of Greenfield investment by USAID), and Finance Sudan (FSL) (funded by ARC International and Micro Africa Limited). Further to this organization, five new actors (three International, and two local – CDS, and Jalia Savings and Credit limited: JASCO) are considering entry.

133. Presently, the MFIs estimate that they cover only 5 percent of the available clients in the greater Juba region, and less than 1 percent of the potential market in South Sudan12. Whilst the majority of clients are still focused in urban hubs, 7 of the 10 states of South Sudan already benefit from microfinance services. The MFIs interest rates are not unduly excessive (range of 24 percent to 36 percent per annum) given the high costs of South Sudan and the Kenyan averages (30 percent per annum), but their products are not greatly diversified (mainly group loans, individual loans, and salary loans), and they have not as yet serviced the strong demand for savings products and housing loans.

134. The microfinance agencies face different limitations including unstable access to funds (particularly in terms of grant and equity), the lack of a regulatory framework that would enable them to better fund themselves through savings, and poor capacity (poorly trained staff, lack of IT systems, poor monitoring and controls, etc). Further issues that have been hindering their provision of microfinance include low staff retention and market demolitions, while their geographical and sectoral outreach is limited respectively by security and client access to productive training.

135. With assistance from the MDTF-SS funded PSD project, the Central Bank of South Sudan is completing its microfinance policy, microfinance law and regulatory framework for microfinance. The microfinance policy defines the roles and responsibilities of the various stakeholders in microfinance and distinguishes between the deposit and non-deposit taking microfinance institutions. The regulatory framework defines the prudential regulations on capital requirements, loan loss classifications, off-site and on-site inspections and limitations on risk concentration. The South Sudan Microfinance Development Facility (SSMDF) was

12 Estimated population of 8.5 Million in South Sudan, most of them of very basic income levels (and thus potential clients for MFIs), while loan provision as of Dec 08 totaled approx 20,000 clients.

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established as a Microfinance Apex Institution to serve the microfinance sector in South Sudan. It was established as a private company governed by an autonomous Board comprising public, private and civil society representatives, and became fully operational in July 2009. The SSMDF Board is chaired by the Ministry of Commerce, Industry, and Investment.

136. In addition to SSMDF, there are several NGO’s and Bilateral Donors provide wholesale support to the MFI sector in South Sudan. The main actors include the United Nations Capital Development Fund (UNCDF), USAID, through their GEMSS program and the American Refugee Committee (ARC), an NGO specialized in resettlement of displaced people. In terms of assets (loans outstanding), SSMDF share of the market is around 23 percent, however this market share is expected to grow in the coming years. All the providers of capital for the MFIs’ target the more established MFIs, including Finance Sudan, SUMI and BRAC that are concentrated in the main urban centers in South Sudan. SSMDF is also providing support for greenfield MFIs, particularly in more rural areas.

Existing SSMDF portfolio

137. At the moment, SSMDF has a total of eight outstanding loans with seven institutions as one of the institutions (RUFI) has two loans that are both ongoing. All the loans accrue an annual interest rate of 8 percent with both interest and principal payments falling due on quarterly basis. All loans are subject to four equal quarterly disbursements, subject to meeting some targets.

138. Of the eight institutions, SUMI, BRAC, FSL and FDS have outstanding loans that have a standard loan term of 3 years with a grace period of one-year on principal payments. On the other hand, WOYE and CAD have outstanding loans with standard loan term of 5 years and a grace period of 3 years with both interest and the principal installments falling due at the end of the grace period. Finally, RUFI has two loans of which one has the standard loan term of three years with one year grace period and the other with a loan term of 5 years with three years grace period.

139. Comparing SSMDF loans to other wholesale providers, the table below which details a number of loans lent to one of the MFIs13 in the course of the past three years. SSMDF charges the highest rate in the market even though the SSMDF rate is still below the prevailing inflation rate, which is estimated to be around 10-12 percent. In comparison, the commercial banks (Equity Bank and KCB Sudan Ltd) lend at 15-18 percent

Index Lending Institution

Currency Outstanding Amount

Term Interest Rate

1 UNCDF SDG 1,251,833 5.5 years 3.00 percent 2 ARC SDG 145,505 3 years 6.55 percent 3 GEMSS SDG 2,211,620 2 years 0.00 percent 4 SSMDF SDG 1,075,200 3 years 8.00 percent

13 The illustration provides comparison of the terms of the various wholesale loan providers to one particular MFI.

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140. The table below summarizes the portfolio of the MFIs supported by SSDMF. Portfolio of Microfinance Institutions in South Sudan14

MFI Active Borrowers

Loan Portfolio Unaudited-SDG

Av. Loan Size SDG

percent of Total MFI Provision

Products

Loans past due (30-90 days) percent

PAR >90days ( percent)

Operational Self Sufficiency15 ( percent)

BRAC 18,498 5,093,287 200 100 percent

Group & Individual Loan 38 percent

6 percent 31 percent

SUMI 10,389 4,532,054 520 100 percent

Group, salary & individual loan

9.30 percent

8 percent

33.65 percent

FSL 2,764 2,364,653 560 100 percent

Group, salary & individual 10 percent


RUFI 680 217,408 506 100 percent

Group Loan & individual Loan

0.22 percent


FDS 62 17,656 600 100 percent

Group & Individual Loan 71 percent


WOYE 867 497,148 435 100 percent Group Loan 27 percent


FRONTIER 30 1,810 150 100 percent Group Loan 0 percent

0 percent 5 percent

Total 33,290 12,724,016 424 100 percent n/a

22 percent


Directed Credit

141. In South Sudan there is no policy requirement for directed lending. Moreover, the proposed program of support to microfinance providers is not targeted at any specific productive sectors or activities in the economy. Microfinance providers who satisfy the stipulated criteria to access the funds will be free to choose clients to lend, provided that the clients are engaged in lawful activities.

On-lending terms

142. Terms (SSMDF to MFIs). The loan period will be agreed on as per negotiations with each specific MFI, who may have a preference on the period of repayment given their use of the funds and the maturity of the institution. A short grace period may be necessary for certain institutions. It is expected that the tenor will remain 3 years with a 1 year grace period. Given the targets and milestones set in discussions with each MFI, the funds will be disbursed in tranches

14 Sudan Financial Sector Review. As of December 2010. 15 Extent to which operational income covers operational expenses

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as each target is met. Loans will be denominated in the New South Sudanese Pound. Depending on satisfactory performance of the MFI, an additional loan may be granted on request at the maturity of the previous loan.

143. On-Lending Rate (SSMDF to MFIs). In order to ensure that the MFIs’ on-lending of the LOC funds is profitable, the BoSS will determine a reasonable non-subsidized wholesale interest rate at which to lend the funds to the MFIs. This rate will include an agreed fixed rate (such as LIBOR), a consideration for inflation, and small mark up to cover operating costs and profit. It is expected that the interest rate will remain in the range of 8-10 percent in the medium term.

144. Lending Terms (MFI to Clients). No interest rate capping will be imposed. Interest rates will be based on the MFIs’ existing products in South Sudan (2-3 percent a month) and the MFIs’ perceived risk of the borrowers. The MFIs would bear the full risk of the loans.

145. Allocation of the Loan Amount. The loan amount will initially be credit capped for the MFIs based on their financial strength and perceived absorptive capacity. But loans will be provided on a first come first serve basis, until the MFI achieves its credit cap. Based on the performance of each provider over time, the loan amount available for each satisfactorily performing provider will be reviewed.

Financial Institutions Selection and Eligibility Criteria

146. The table below presents a snapshot of the eligibility criteria and type of support provided by SSMDF depending on the level of development of the institution. It is expected that these criteria will be applied to MFIs applying under the proposed project. Category Type of Partner

Organisation Eligibility Criteria Possible SSMDF

Support

1 Start-up (Green fielding) or low activity levels

Registered as a legal entity and authorized to provide microfinance services in South Sudan

Targeting poor and low-income people and/or microenterprises;

A minimum of 100 active clients A functional board and management

with basic knowledge of microfinance best practices.

Extensive general technical support and perhaps development grants and/or limited seed funding

2 MFIs scaling towards sustainability

Registered as a legal entity and authorized to provide microfinance services in South Sudan

Demonstrate competence in microfinance program management – with written policies to guide operations,

3-5 year business plan.

Receive Technical Assistance, Loan Funding, and guarantee instruments

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A minimum of 1000 active clients Annual external auditing by reputable

auditors. Products priced to ensure full-cost

recovery. Minimum of 85 percent loan

recovery rate Active Board and Management has

good Microfinance management experience.

3 Well established and sustainable MFIs

Active Board and Management has good MF understanding.

Sound operational policy manuals in place

Monthly financial statements Minimum number of active clients

5000. External audits performed annually at

least for past two years. Minimum 100 percent Operational

Self Sufficiency Minimum of 80 percent financial self

sufficiency PAR ≤ 5 percent Write off ratio ≤ 2 percent.

Receive Technical Assistance, Loan funding, and Guarantee Instruments

147. In line with existing SSMDF practices, the following financial, corporate governance and management standards apply: 148. Financial Standards

a) If the selected MFI is a bank, it should meet the prudential regulations of the central bank.

b) Other MFIs should be fully sustainable and covering their operating costs and costs of capital on an adjusted basis.

c) The portfolio at risk greater than 30 days remains below 5 percent. d) The MFIs will set up an internal control and audit function (if it has not already done so)

and be ready to submit itself to annual external audits and ratings. 149. Governance Standards

a) The MFI will be a transparent and accountable organization with a well functioning Board of Directors responsible for setting the overall MFI’s policy and perform oversight of the MFI’s operations.

b) The MFI will have a qualified and experienced management team and staff who possess the skills needed to develop the institution successfully.

c) The MFI will have a sound Business Plan, budget control and financial reporting system.

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d) The MFI will have an adequate Monitoring and Evaluation System capable of meeting reporting requirements under the Microfinance Component of the Project.

150. The selected institutions will undergo an in-depth due diligence by the SSMDF team to verify that all the conditions listed above apply and will receive intensive on-the-job training from the SSMDF. Based on the due diligence, the institutions will be ranked according to the criteria listed above. Potential financial institutions, unable to meet eligibility criteria, will not be given access to the LOC or technical assistance until after capacity has been satisfactorily built up in these institutions. The ability of financial institutions to lend to the MSME segments will be assessed prior to the signing of the loan agreements. If a promising MFI is found to be capable to lend to the segment non technical assistance will be provided.

151. MFIs selected for assistance will be eligible to receive grants for loan capital, technical assistance, short-term operating costs. Criteria for selection will include portfolio-level considerations, such as ensuring adequate geographic coverage and diversity of provider types and financial services. Applicants will present a business plan indicating their anticipated performance targets and assistance needs. The SSMDF will vet these applications and will review the business and assistance plan, and negotiate changes as appropriate. The Board and/or the Finance and Investment Committee will approve all awards and contracts, based on the recommendation of management.

Monitoring Arrangements

152. The PCU in collaboration with the PIU at the BoSS will have the responsibility for monitoring the credit line implementation progress. The PCU will monitor the MFIs through receipt of monthly loan portfolio schedules and annual audited financial statements. In addition, PCU and PIU staff will visit the MFIs and interview the management on a periodic basis.

153. SSMDF requires MFIs receiving its support to provide monthly and quarterly reports, including financial and portfolio performance. Additionally, SSMDF management from time to time pays onsite visits to the MFIs in which SSMDF staff meet with management of the MFIs, junior staff as well as sample clients to verify information provided in the reports and have a better understanding of the MFI operations.

154. Performance indicators collected by SSMDF for the activities under the LOC will measure increase in outreach and detailed financial performance of the microfinance providers. The outreach indicators will, among others, monitor the number of microfinance providers, including the number outside the major town centers, number deposit clients, average deposit balances, number of loan clients and average loan balances.

155. Compliance of MFIs with eligibility criteria, including a requirement to maintain specific asset quality targets in line with international norms for microfinance (portfolio at risk for more than 60 days below three percent), will be reviewed on a semi-annual basis by SSMDF’s Supervision Department (also, portfolio quality reports will be reviewed on a monthly basis) during the life of the LOC and non-compliant MFIs will have their access to the LOC suspended, and ultimately terminated. If satisfactory corrective action is not taken, MFIs will be subject to a

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substantial penalty. Additionally, the independent external auditors of the MFIs will be required as part of each MFI’s annual statutory audit to provide a report to SSMDF regarding the accuracy of the microfinance loan balance information supplied by the MFI to SSMDF when determining the amount of its microfinance lending eligible for LOC financing.

Use of Bank Funds

156. The Bank funds channeled through the line of credit are to be used to finance the purchase of equipment, goods and services for use in sub-projects by the MFI borrowers (under Component 1) and BPC winners (under Component 2). There will be no cap on the sub-loan size, this will be determined by the business model of each MFI. .

Coordination with IFC

157. South Sudan is still in a post-conflict environment and the IFC does not have any investment operations in South Sudan as yet because South Sudan is yet to become a full-fledged member of the IFC (prior to South Sudan’s independence, IFC activities in South Sudan were constrained by Sudan’s arrears to the World Bank Group affiliates). Since 2005, the IFC has managed an investment climate program that is fully trust-funded. Their involvement includes technical assistance to the SSBF that this project is supporting under Component 4. Until the approval of SSTTF, IDA’s involvement in South Sudan had been largely restricted to managing the MDTF-SS.

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Annex 2: Results Framework and Monitoring


Results Framework

PDO Outcome Indicators Use of Outcome Information

Improve access to finance for private sector development and increase employment opportunities in South Sudan

1. Number of jobs generated by enterprises supported by the BPC sub-grants

2. Number of people with access to finance through targeted MFIs and BPC

Beneficiaries

3. Direct project beneficiaries (Number of businesses supported through BPC)

4. Number of people with access to finance through targeted MFIs

To assess effectiveness of the support to MFIs and BPC

Intermediate Outcomes

Intermediate Outcome Indicators Use of Intermediate Outcome

Monitoring

Component 1. Establish Commercially-Viable Microfinance Institutions

Create a viable microfinance sector that provides financial services to the currently unbanked.

5. Number of active loan accounts - Microfinance

6. Portfolio at Risk - Microfinance

To assess the performance of SSMDF

Component 2. Promote Micro-Entrepreneurship

Catalyze micro entrepreneurship and develop a repayment culture.

7. Number of ongoing businesses supported through BPC

8. Number of startup businesses supported through BPC

9. Number of businesses supported through BPC the still in operation at the end of the project

To assess the effectiveness of BPC support

Component 3. Mobile Payments and Trade Integration Policy Support

Develop the enabling environment for mobile banking and payments.

10. Number of MCII staff trained on trade policy and integration

11. The regulatory framework for mobile banking and payments is completed and presented to Cabinet

To monitor progress with policy support

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Arrangements for Results Monitoring

Project Outcome Indicators

Cor

e Unit of measure

Baseline16 Target Values Data Collection and Reporting YR1 YR2 YR3 Frequency

and Reports Data Collection Instruments

Responsibility for Data Collection

Number of jobs generated by enterprises supported by the BPC sub-grants

Number 98 98 120 250 Quarterly Banks/Loan

Monitoring MCII/PCU

Number of people with access to finance trough targeted MFIs and BPC.

Number 12,586 (M)34,160 (F)

13,020 (M) 35,025 (F)

13,810 (M) 35,835 (F)

14,560 (M) 36,585 (F)

Quarterly SSMDF/ Banks/Loan Monitoring

MCII/PCU

Beneficiaries Direct project beneficiaries Number 20 (M)

25 (F) 20 (M) 25 (F)

60 (M) 85 (F)

60 (M) 85 (F)

Quarterly Banks/Loan Monitoring

MCII/PCU

Number of people with access to finance through targeted MFIs

Number 12,566 (M)34,135 (F)

13,000 (M) 35,000(F)

13,750 (M) 35,750 (F)

14,500 (M) 36,500 (F)

Quarterly SSMDF/ Banks/Loan Monitoring

MCII/PCU

Intermediate Project Outcome Indicators

Cor

e Unit of measure

Baseline Target Values Data Collection and Reporting YR1 YR2 YR3 Frequency

and Reports Data Collection Instruments

Responsibility for Data Collection

Component 1. Establish Commercially-Viable Microfinance Institutions Number of active loan accounts - Microfinance

Number 9,893(M) 24,324 (F)

10,500 (M) 25,000 (F)

11,250 (M) 25,750 (F)

12,000 (M) 26,500 (F)

Quarterly SSMDF Reviews MCII/PCU

Portfolio at Risk - Microfinance Proportion 25 percent 22 percent 18 percent 15 percent Quarterly SSMDF Reviews MCII/PCU Component 2. Promote Micro-Entrepreneurship Number of ongoing businesses supported through BPC (male/female)

Number 0 (M) 0 (F)

0 (M) 0 (F)

32 (M) 48 (F)

32 (M) 48 (F)

Quarterly Banks/Loan Monitoring

MCII/PCU

Number of startup businesses supported through BPC (male/female)

Number 20 (M) 25 (F)

20 (M) 25 (F)

28 (M ) 37 (F)

28 (M) 37 (F)

Half-yearly Banks/Loan Monitoring

MCII/PCU

Number of businesses supported through the BPC still in operation at the end of the project

Number 0 - - 40 Half-yearly Banks/Loan

Monitoring MCII/PCU

Component 3. Mobile Payments and Trade Integration Policy Support Number of MCII staff trained on trade policy and integration

Number 0 0 20 25 Half-yearly MCII Reports PCU

The regulatory framework for mobile banking and payments is completed and presented to Cabinet

Yes/No No No No Yes Annually BOSS Reports MCII/PCU

16 Female-F, Male-M

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Annex 3: Summary of Estimated Project Costs


Project Cost Summary – Component wise (US$ million)

Component Year-1 Year-2 Year-3 Total

1 Establish Commercially-Viable Microfinance Institutions

1.20 1.20 0.40 2.80

2 Promote Micro-Entrepreneurship 3.20 1.10 0.10 4.40

3 Mobile Payments and Trade Integration Policy Support

0.00 0.30 0.00 0.30

4 Institutional Strengthening & Project Management

0.50 0.50 0.50 1.50

Total Project Costs 4.87 3.07 1.07 9.00

Breakdown by Components

Expenditure Category Cost (US$ million)

Percent of Total Project Cost

Component 1: Establish Commercially-Viable Microfinance Institutions a. Sub Grants to provide commercial and technical support to MFIs b. Operating Costs of SSMDF Subtotal

1.9 0.9 2.8

30 percent

Component 2: Promote Micro-Entrepreneurs. Subtotal a. Sub grants to BPC winners b. Preparation, Technical Assistance, and M&E Subtotal

3.0 1.4 4.4

49 percent

Component 3: Mobile Payments and Trade Integration Policy Support

0.3 3 percent

Component 4: Institutional Strengthening of the South Sudan Business Forum and Project Management.

1.5 17 percent

Grand Total 9.0 100.0

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Cumulative Expenditure by Category

Category

Amount of the Grant Allocated

(expressed in USD)

% of Expenditures to be Financed

(inclusive of Taxes)

(1) Goods, non-consulting services, Workshops and Training, Operating Costs and consultants’ services under Parts 2,1, 3.2, 4.1 and 4.2 of the Project

3,030,000 100


870,000 100


200,000 100


3,000,000 100


1,900,000 100 t

TOTAL AMOUNT 9,000,000

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Annex 4: Operational Risk Assessment Framework (ORAF)


Stage: Board (Disclosed Version)

Project Stakeholder Risks Rating Moderate Description: The risk that government may want to include additional components in the project, such as support for a PPP law and construction of the Juba market. Women groups might worry that the project may not be able to support women as much as proposed in the gender targets.

Risk Management: The Recipient and the World Bank will highlight the positive outcomes of the MDTF‐SS funded PSD project components that will continue to be supported under the project using successful stories. Resp: Recipient/World Bank

Stage: Implementation Due Date : 6/2012 Status: Ongoing

Risk Management: The World Bank will continue consultation with the government, and look for additional funding sources to support such components, such as PPIAF and the next FPD project.

Resp: World Bank Stage: Implementation Due Date : 11/2012 Status: Ongoing Risk Management: The Recipient and World Bank will explore the possibility of applying to the Gender Action Plan Trust Fund to obtain additional resources to support women entrepreneurs.

Resp: Recipient/World Bank

Stage: Implementation Due Date : 6/2012 Status: Not due

Implementing Agency Risks (including fiduciary) Capacity Rating Substantial Description: Although the MDTF-SS funded PSD project has helped to build capacity, MCII is still weak in terms of implementation capacity (procurement, contract management, and FM, monitoring and evaluation). Current personnel working on the ongoing MDTF‐SS funded PSD project may leave before the project becomes effective due to future uncertainty and better opportunities elsewhere. Financial Management. FM systems are still undeveloped particularly at the Ministry level. Capacity is low to prepare budgets that lay down physical and financial targets in

Risk Management: The World Bank will promote greater delegation of decision‐making power to the PCU. In doing so, the World Bank will provide technical assistance including M&E.

Resp: World Bank Stage: Implementation Due Date : 6/2012 Status: Not due Risk Management: The World Bank is in the process of extending the MDTF‐SS funded PSD project from January 2012 until June 2012 together with additional financing. Furthermore, MCII and the World Bank will provide ongoing training to minimize the effects of staff turn‐over. Resp: World Bank Stage: Implementation Due Date : 6/2012 Status: Ongoing Risk Management: The PFMU will support the PCU in the first year of implementation to set up a strong Financial Management system. A qualified Project Accountant would be engaged;

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sufficient detail to monitor subsequent performance and to properly account and report on funds utilization.

2 FM Accountants in the ministry would also be assigned to work with the project to develop the capacity in the ministry. The Audit Chamber would audit the project activities with support from an External Audit Agent. The World Bank will provide continuous assistance to ensure that project staff is able to prepare adequate budgets and monitor progress. The PCU will be required to provide monthly FM reports to ensure close supervision and monitoring of budget. Robust action plans would be developed from the on‐going Integrated Fiduciary Assessment to support the PFM systems in the country Resp: Recipient/World Bank


Governance Rating: Moderate Description: Changes in leadership of MCII can reduce ownership of the project. Furthermore, current support under the MDTF‐SS funded PSD project sometimes did not trickle down to other staff.

Risk Management: Team will establish dialogue early with the Minister and Under Secretary on project’s objectives and implementation structure to encourage ownership.

Resp: World Bank Stage: Implementation Due Date : 4/2012 Status: Ongoing Risk Management: The selection committee for BPC will now include civil society and private sector as a way to sustain ownership of the project.

Resp: Recipient Stage: Implementation Due Date : 10/2012 Status: Not due Risk Management: MCII will disclose BPC results improve accountability, and the external agency involved in BPC will handle any complains.

Resp: Recipient Stage: Implementation Due Date : 2013 Status: Not due Project Risks

Design Rating: Substantial Description: The performance of BPC winners may not be as good as expected. During the MDTF‐SS funded PSD project, the performance of some BPC winners was questionable.

Risk Management: The weak performance of some BPC winners was due to the nature of startups in South Sudan and lack of an adequate M&E support system in place. As a result, the project will now focus a greater proportion (80 percent) on ongoing business, while supporting and monitoring closely the performance of startups.


Stage: Implementation Due Date : 2013 Status: Ongoing

Social & Environmental Rating: Moderate Description : The BPC may have awardees using the sub-grants on agricultural and other activities that may trigger social environmental safeguards.

Risk Management: The project will employ a socially‐sensitive environmental specialist to oversee any potential safeguards issues.

Resp: Recipient Stage: Implementation Due Date : 3/2012 Status: Not due

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Risk Management: Early during project implementation, the client will undertake environmental and social assessments and establish mitigation measures using either its environmental specialist or a consultant.

Resp: Recipient Stage: Implementation Due Date : 4/2012 Status: Not due Risk Management: The Recipient and World Bank will guide the development of the BPC selection criteria in order to minimize the likelihood of potential adverse impacts related to environmental and social safeguards. Resp: Recipient/World Bank


Delivery Monitoring & Sustainability Rating: Substantial Description: Result measuring under the MDTF‐SS funded PSD project has proven challenging given the absence of an M&E system.

Risk Management: The Recipient and World Bank will support the use of the M&E system currently being finalized under the ongoing MDTF‐SS funded PSD project to measure progress.



Risk Management: Training and TA will be made available if monitoring and evaluation weaknesses are detected.

Resp: Recipient Stage: Implementation Due Date : 8/2012 Status: Not due Overall Risk Following Review

Implementation Risk Rating: Substantial

Comments: The overall risk rating takes into account the post-conflict conditions of South Sudan and the experience gained under the ongoing MDTF-SS funded PSD project.

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Annex 5: Financial Management and Disbursement Arrangements

REPUBLIC OF SOUTH SUDAN: Private Sector Development Project 158. The World Bank’s Operational Policy 10.02 requires the Recipient and the grant implementing agency to maintain adequate financial management arrangements – including accounting, financial reporting, internal controls, budgeting and auditing arrangements – to ensure that accurate and timely financial information can be provided regarding grant resources and expenditures. A financial management (FM) assessment is aimed at ensuring that this requirement is met; ensure that funds will be used only for the intended purposes; and to determine if there are systems that ensures efficient and economical use of funds, adequate capacity for the preparation of accurate, reliable and timely Interim Un-audited Financial Reports (IFR), existence of arrangements capable of correctly and completely recording all transactions relating to the grant, adequate safeguards for the entities’ assets and that the grant activities are subject to auditing arrangements acceptable to the World Bank. A detailed FM Capacity assessment of the Ministry of Commerce was carried out in August 2011 in accordance with OPCS guidelines titled “Assessment of Financial Management Arrangements in Bank-Financed Projects – Guidelines to Staff” issued by the Financial Management Sector Board on June 30, 2001, and Financial Management Manual dated March 2010. The review reveals that there are still capacity challenges in financial management in the ministry. As a result, FM for the grant will be managed initially by the Recipient’s Project Financial Management Unit (PFMU), while the FM capacity in the ministry in being developed with support from the project; subsequently, the FM would be taken over by the ministry. On-going review and supervision reports of the PFMU, which was established to provide financial management functions for the MDTF financed projects, indicate that they have the required capacity to carry out the FM for the project. Their performance has been assessed as satisfactory and will continue to FM functions for on-going projects as well as this project. Based on their current systems and performance the FM risk is assessed as Moderate.

Country Issues

159. A Public Expenditure and Financial Accountability Assessment (PEFA) has been carried out for the Government of the Republic of South Sudan and four Sub-National governments – Jonglei, Unity, Western Equatoria and Northern Bahr-el- Ghazal States. The assessment report (which is still in draft) indicates that the budget is prepared with regard to government policies; there is on-going installation of integrated financial management system; electronic payroll system; improved internal and external audit system. It however noted that downstream PFM areas, such as budget execution, accounting and some internal control systems, are still characterized by significant weaknesses, resulting in budgets that are not credible. It indicated that the PFM law is not in place; aggregate and spending agencies’ expenditure out-turns is significantly different from the approved budgets; constitutional and legal controls on changes in approved budget are not fully adhered to; low in-year predictability of availability of funds; build-up of payment arrears; non transparent public procurement system; non robust internal control system amongst other things.

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Project Financial Management System (PFMS)

160. The Project is led by the Directorate of Private Sector Development (DPSD) in the Ministry of Commerce who is also responsible for the coordination of the project. Project implementation is carried out by SSMDF (component 1), Bank of South Sudan (Component 3.1) and DPSD in MCI (components 2, 3.2 and 4). The objective of the grant is to improve access to finance for private sector development and increase formal employment opportunities in South Sudan.

161. The Financial Management systems in the Republic of South Sudan (RSS) have been assessed as highly risky due to the still weak, though developing FM systems and inadequate FM capacity in the Ministries. Over the past years, the World Bank has supported RSS by putting in place fiduciary framework to reduce the financial management risk for both GRSS and the World Bank’s administered projects. The Project Financial Management Unit (PFMU) established in Ministry of Finance and Economic Planning (MoFEP) provides financial management functions including preparing withdrawal applications, accounting and reporting on project funds and ensuring that the project financial statements are audited. This unit would still support the project for the first year of implementation and working closely with a qualified Project Accountant, build up the capacity of the ministry staff to carry out the financial management functions.

162. The Audit Chamber has the responsibility for external audit but currently has limited capacity. Under the MDTF financing an External Audit Agent is currently working with the Audit Chamber to carry out Government and project audits as well as building the Chamber’s capacity. The project would support the Audit Chamber, after the expiry of the contract with the EAA to ensure that staff of the Audit Chamber are able to carry out the project audit and to provide an independent opinion on the reliability of the financial statements produced for the project, the systems and internal controls used by the project and the eligibility of expenditures incurred under the SOE method. The annual external audit will be carried out in accordance with international standards on auditing.

Accounting Policies and Procedures.

163. The grant will be accounted for on a cash basis. These will be supported with appropriate records and documentation to track commitments and to safeguard assets. Accounting records will be maintained in US$.

164. The PCU and each PIU responsible for the Project implementation will ensure that:

a) All important business and financial processes are adhered to; b) Adequate internal controls and procedures are in place; c) Interim un-audited financial statements –IFRs are prepared on a timely basis; d) The financial information required by the PFMU/Accounting Units are provided

promptly by PCU and each PIU; e) The financial Statements are prepared on a timely basis and in accordance with

International Accounting Standards (IAS) or International Public Sector Accounting Standards (IPSAS);

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f) The external audit is completed in time and audit findings and recommendations are implemented expeditiously.

165. The Chart of Accounts will facilitate the preparation of relevant reports and financial Statements, including information on total project expenditures; total expenditure on each project component/activity, and analysis of that total expenditure into various categories of goods, training, consultants and other procurement and disbursement categories.

Planning and Budgeting

166. The PCU, working closely with each of the PIUs will prepare the budget, the work plan and cash flow forecast for each component and submits to the PFMU after the necessary approvals from the line ministry (MCII) and the TTL.

Internal Controls

167. Financial Management procedures in the existing Project Implementation Manual would be updated to reflect specific FM arrangements for the project. The Financial Management procedures documents acceptable control procedures for approval and payment processes before payment can be done under the project. These procedures require that the implementing ministry certifies the completion and acceptance of goods or services before requesting for payment. The Project Accountant and PFMU also ensure that the contracts are consistent with the invoices and payment request before processing them. In respect of operating cost activities where the Ministry has full control over payment processes, new advances will be processed only if previous ones are accounted for. The Project Accountant, working closely with the M&E Officer, will monitor and report on the utilization of project funds, including the fiduciary standards complied with and the reliability of the FM systems.

Fixed Assets and Registers

168. The Fixed Assets Register relating to the grant will be prepared by the project and shall be updated regularly using the information from the Cash Book. The PCU will also ensure that new assets are reflected in the register and a physical verification of fixed assets is carried out periodically. A Contracts Register will also be maintained in respect of all contracts with consultants, contractors and suppliers. The PFMU and project unit will prepare Contract Status Reports quarterly as part of the IFRs. Control procedures over fixed assets and contracts management will be the responsibility of the PCU.

169. The Fixed Assets Register will reflect details of suppliers, description and location of goods, original cost, disposal of assets, asset reference (identification) number; Serial or registration number; date of purchase and price (cost) and/or valuation, additions to the asset; condition of asset, useful life and residual value; disposal.

Information Systems

170. All project financial management records will be maintained using the NAVISION computerized system which has been developed for financial management of projects in the PFMU and would be installed for the project and necessary training carried out for the

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accounting staff. All transactions would be properly accounted for and recorded properly. The PFMU will support in the installation of the system in the project unit and ensure that the system is able to generate the required financial reports for the project managed.

Financial Reporting and Monitoring

171. The PFMU/Project Accountant will be responsible for the financial reporting of the grant. PCU will prepare detailed accountability for all advances received and for all activities carried out not more than two weeks after the completion of the activity. Quarterly Interim Un-audited Financial Reports (IFR) will be prepared by the PFMU/Project Accountant for the purpose of monitoring the implementation of the project and submitted to the GoSS, MCII, MOFEP, and the World Bank. This includes a Statement showing, period and cumulative inflows by sources and outflows by main expenditure classifications; beginning and ending cash balances of the project; and supporting schedules comparing actual and planned expenditures. The grant Annual Financial Statements will be prepared by the PFMU/Project Accountant, and will include:

Statement of Sources and Uses of funds (by major Component/ Activity); Statement of Cash Position for Project Funds from all sources; Statements reconciling the balances on the various bank accounts (including the Project

Account) to the bank balances shown on the Statement of Sources and Uses of funds; SOE Withdrawal Schedules listing individual withdrawal applications relating to

disbursements by the SOE based method, by reference number, date and amount; Notes to the Financial Statements

172. The Annual financial statements will be for the purpose of submission to the auditors to facilitate the conduct of annual audits of the project.

Strength and Weaknesses

173. Strengths. A key strength is the use of the PFMU in the first year of implementation; the PCU which already has a Finance Officer; and contracting of reputable international firms with experience of the World Bank’s financial procedures in accounting and auditing to support the Audit Chamber in the external Audit.

174. Weaknesses. The banking industry in South Sudan is still weak, increasing the challenges of establishing payment mechanism or entering into commercial transactions. In addition, though the World Bank has commenced FM training, the staff capacity at the ministry is still very weak.

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Summary Risk Assessment and Mitigation Measures

Risk Rating

Risk Mitigation Measures Residual Risk

INHERENT RISKS Country level H SImportant PFM related bills including Financial Management Bill, Audit Chamber Bill and Procurement Bill are awaiting Parliament’s approval and no comprehensive financial management policy and procedure. External Auditing is not up to date. Computerization of the accounting system is not yet rolled out to all ministries and there is over spending and weak commitment control system. In addition, the FM capacity of accounting staff is still weak.

Fiduciary framework arrangements for the grant and other World Bank administered funds would be supported by the PFMU for accounting in the first year while the FM capacity in the ministries is being developed; and external auditing would be supported by EAA for auditing. FM procedures and guidelines put in place and used by PFMU will be updated for the project purpose. Southern Sudan Integrated Fiduciary Assessment (SSIFA) is in progress.

Entity level S SInformation system including book keeping, reporting, budgetary control is not automated. Free Balance computerized accounting system which is being installed by government is yet to be implemented. Educational background and experience of most of the PFM staff are not adequate for the current responsibilities and most have little or no computer skills.

Implementation will be supported by credible, already agreed and existing fiduciary systems and mechanisms. PFMU will support the PCU in the first year of operation and EAA would be engaged to support the Audit Chamber in its audit responsibilities respectively. .

Project level S MLack of understanding of World Bank requirements leading to delays in preparing of financial statements and audit report; and in approval processes causing payment delays;

Same as above.

OVERALL INHERENT RISK H S

CONTROL RISKS Budget Budgets are not comprehensive; budgeting, cash flow forecasts, planning and controlling are not properly executed; overspending which makes budgetary control difficult.

S

Work plans and budgets will be required to be prepared by PCU working closely with the PIUs and reviewed by World Bank TTL. Support will also be provided to entity in the budgeting process by the PFMU. It is expected that World Bank will liaise to ensure that these budget figures under the project are captured in the overall GRSS budget to support the creation of a comprehensive budget with donor input.

S

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Accounting Accounting records will not be up to date and accurate; Risk of improper filing and records management systems; There is no readily available information system in the ministry for the immediate use of the project. FreeBalance is not operational even at the level of MoFEP to manage project funds.

M

In the first year of the project, PFMU will support the Project Accountant in carrying out the accounting functions, record keeping and accounting under the project. Funds will only go to contractors procured in line with the World Bank’s procurement procedures. Transfers to the PCU for operating cost activities will be limited to small payments and on imprest basis, while other payments will be made directly from the Project Account. PFMU will also support in building the capacity of the PCU to carry out the project activities after the first year. The project will have a separate Accounting procedure manual incorporated in the PIM for use by PFMU, the PIU and PCU. Disbursement arrangements will be indicated in the PIM

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Internal Controls, including internal audit i) inadequate controls and delays in approval processes; ii) funds not accounted for on time; iii) some funds are used for non grant activities (ineligible activities); iv) political leadership may demand financing for ineligible activities and over rule controls;

S

Involvement of the PFMU in the first year of implementation ensures that the overall ICs are adequate as they process major payments and are responsible for reporting and documentation. Only smaller operating cost activities are paid for at the entity level and clear rules will be applied to ensure compliance. New releases will only be effected when previous balances have been accounted for.

M

Funds flow i) Non timely notification from banks on receipt of funds; ii) delays in receipt of bank statements to facilitate disbursement.

S

PFMU is responsible for the operation of designated account. Funds will be requested from the World Bank as needed. Payments to third parties will be made in accordance with payment terms in contracts. DA is kept in a commercial bank with satisfactory performance. PFMU and PCU will follow up promptly with local banks to ensure funds are accessed promptly.

M

Financial Reporting i) delay in the submission of financial reports ii) Information received from the PCU and PIUs will be inaccurate due to weak capacity or misapplication of the funds.

H

The PFMU will be responsible for all financial reporting in the first year and build the capacity of the Finance Officer and Ministry Accountants to continue thereafter. Standards and formats have already been agreed.

M

Auditing Audit Chamber has limited capacity to audit the grant.

M

The Auditor General of Audit Chamber of RSS will outsource the external auditing activity through international competitive bidding and supervise the work.

M

OVERALL CONTROL RISK The Overall Project FM risk is assessed as Moderate MH-High S-Substantial M-Moderate L-Low

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External Auditing Arrangements:

175. The Audit Chamber has the constitutional responsibility for carrying out all audits in the Republic of South Sudan. The World Bank, through the Multi Donor Trust Fund has supported the Audit Chamber in developing its capacity. However, this is not fully developed. In order to continue to support the strengthening of country systems, the project audit would be carried out by the audit chamber with support from an audit agent. The project may be required to support the financing of this external audit agent after the expiry of the contract of the current external audit agent. The audit would be in conformity with the World Bank’s audit requirements and in accordance with internationally recognized auditing standards. The auditor will express an opinion on the Financial Statements in compliance with International Standards on Auditing (ISA). The external auditors will also prepare a Management Letter giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the Grant Agreement. The first audit outside PFMU arrangements would be for the period ending June 30, 2013 in conformity with the new financial year calendar of the government. The final audit report will be submitted to the World Bank within six months after the end of the grant.

Fraud and Corruption

176. Possibility of circumventing the internal control system with colluding practices as bribes, abuse of administrative positions, misprocurement etc is a critical issue and may include: (a) late submission of supporting documents; (b) poor filing and records; (c) lack of system integration; (d) lack of budget discipline; (e) unauthorized commitment to suppliers, bypassing budget and expenses vetting procedures; (f) unsecured safekeeping and transportation of funds. These are mitigated as follows: (i) specific aspects on corruption auditing would be included in the external audit TOR; (ii) the internal auditor would report directly to the MCII as well as present quarterly reports to the World Bank; (iii) FM Procedures manual approved before project effectiveness; (iv) strong FM arrangements (including qualified Project Accountant, quarterly IFR including budget execution and monitoring; (v) measures to improve transparency such as providing information on the project status to the public, and involvement of the MCII in the project are built into the project design.

Action Plan17

Action Responsibility Due Date

1 Assign 2 Accounting staff from MCII to work with the PCU MCI 2 months after Effectiveness

2 Procure Desktops and install NAVISION Accounting System including training of staff

PCU 2 months after Effectiveness

3 PFMU to open Bank Account, advice bank of Signatories and PFMU Effectiveness

17 Considering the country emergency situation of this operation the actions proposed above will not be included as legal covenants but will be monitor by the task team to ensure compliance by the due dates.

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other banking information

4 Update PFMU Financial Procedures Manual /PIM PCU/PFMU Effectiveness

5 Support Audit Chamber to engage External Audit Agent to carry out Project Audit

PCU/Audit Chamber

June 2012

6 Engage Qualified Project Accountant PCU February 2012

Disbursements, Funds Flow and Banking Arrangements

177. PFMU/Project Accountant shall submit withdrawal applications to the World Bank based on Direct Payment, Advances, and Reimbursements. Expenditure reporting will be based on SOEs, and supporting documents above certain thresholds will be requested. A flexible ceiling on advances will be authorized for the project, to be derived from rolling 3-month expenditure forecasts. Detailed disbursement arrangements will be documented in the Disbursement Letter.

178. Disbursement of funds for sub-project activities under Component 1 may be made through the Designated Account and documented through Statements of Expenditures that indicate the identity of the recipient MFI Borrowers so that a clear audit trail is provided.

179. For sub-project expenditures paid for through Sub-grants under component 2, funds for block collateral would be disbursed as a Directly into a segregated account (the Business Plan Competition Program Account) in the name of MCII and the commercial bank. The withdrawal application should be supported by a copy of the MOU with the commercial bank, a statement of intended beneficiaries as winners of the Business Plan Competition, and the date of the sub-loan agreements with each selected beneficiary, duly certified by MCII and acceptable to the World Bank. Subsequent use of these funds for eligible expenditure and the balances outstanding through the project implementation period would be reported by the PCU to the World Bank as part of Interim Financial Reports and be subject to internal and external audits as stated elsewhere in this document. Any balances remaining outstanding and unspent at the end of the project period would be refundable by beneficiary entrepreneurs to the World Bank.

180. In the first year of implementation, the Project Financial Management Unit (PFMU) in MoFEP, working closely with the Project Accountant, will provide the day to day oversight of funds through the project’s designated bank account denominated in US$ and located in a commercial bank acceptable to IDA. The PCU will open a South Sudanese Pounds project bank account in a commercial bank in Juba, South Sudan to meet local currency payments.

181. The funds flow process will require that:

a) the PCU carries out its due diligence on the activities of the PIUs in accordance with criteria set under the grant and contained in the Grant Agreement;

b) the PIUs determines the amount required for its activities; and make recommendations for payment;

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c) the PCU checks the amount of funds required against the planned activities for which transfers are being requested. The documentation to back up the request will include their bank account details, the project document as well as other relevant information;

d) in order to effect transfer of funds to beneficiaries, MCII will request a No Objection (NO) from the World Bank; and then submits to the PFMU, the NO and request for payment to the goods or service provider or transfer of funds to beneficiaries.

182. Bank accounts, transfers and Payments:

One project bank account will be opened; in South Sudanese Pound (SSP). Payments to be made in USD shall be paid from the USD Designated Account and Payment in local currency SSP will be paid from the SSP project bank account.

Fund will be transferred from World Bank’s into the Designated Account in USD against approved Withdrawal Application to be prepared by PFMU/Project Accountant.

All major payments for goods and services under the grant will be effected directly to the beneficiary through bank transfers and checks by the PFMU upon request from PCU and approval by the Project Coordinator. All other local expenses and payments including operating expenses would be made through the bank account opened by PCU. Each PIU has to submit monthly return report and a budget for the following month to the PCU who approves and forwards same to the PFMU.

The commercial banks will release loan to the successful winners against a grant of up to US$20,000 paid to the respective banks for each loan from the Designated Account (MCII as guarantor) that will be used as block collateral for a loan.

On repayment of the loan to the banks, the micro enterprise will receive the collateral to be used as equity in the business and paid from the project account or held as collateral for an additional loan.

183. The commercial banks together with SSMDF will obtain appropriate quarterly reports from BPC winners and MFIs, respectively, and submit those reports on a quarterly basis to MCII. These reports will document the use of funds to ensure that they are only used to purchase equipment, goods and services.

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Figure 1. Flow of Funds

Designated Account -USD

MCII PCU / PFMU

SSMDFPIU

Component 1

MCII(DPSD)

PIUComponent 2, 3.2 & 4

BoSSPIU

Component 3.1

BPC Selection Committee

Selected Micro enterprises /

EntrepreneursMFIs /

ConsultantsConsultants and

other Fees

SSBF / Sector Working

Group

Commercial Bank

Component 1 Component 3.1

Component 2

Component 4

IDA

Sub-grants (Block Collateral)

Project Implementing Units

Project Account - SSP

Documents flow /instruction Funds flow

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Disbursement Arrangements:

Detailed Project Components Comp.

No Description Budget

in USD

million

Managed by Beneficiaries Remark

1 Establish Commercially-Viable Microfinance Institutions.

2.8 SSMDF MFIs Including Overhead cost of US$0.9 Million to SSMDF

2 Promote Micro-Entrepreneurship 4.4 MCII Support from BPC committee

Micro enterprises

Including US$1.4 million for outreach and M&E

3.1 Mobile Payments Regulatory Framework

0.2 BoSS Sector Overheads and consultancy fees

3.2 Support for Trade Integration Policy 0.1 MCI Sector Overheads and consultancy fees

4 Institutional Strengthening of the South Sudan Business Forum and Project Management

1.5 MCI PCU Public-Private Dialogue Forum

Conclusion and Supervision Plan:

184. The Overall FM risk is rated Moderate. FM supervision will be consistent with a risk-based approach and will involve a collaborative approach with the TTL, CTRFC, CTRDM and procurement. On-site supervision is expected to be carried out six months after project inception; and thereafter, annually. This would cover all aspects of FM. Additional supervision activities will include desk review of half yearly IFRs and internal audit reports, audited Financial Statements and Management Letters as well as timely follow up of issues arising, and updating the financial management rating in the Implementation Status report (ISR) and the Portfolio and Risk Management (PRIMA) System.

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Annex 6: Procurement Arrangements


185. Procurement for the proposed project will be carried out in accordance with the Bank’s “Guidelines: Procurement of Goods, Works and Non Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers dated January 2011 and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers dated January 2011, the emergency procedures described in OP /BP 8.00 and the provisions of the grant agreement. The simplified procurement plan (SPP) will be updated in agreement with the World Bank Project team on a semi-annually basis or as needed to reflect the actual project implementation needs.

186. Procurement of Goods, Works and Non consulting Services: No contract of work is planned under the proposed project. Procurement of goods would include computers, printers and office supplies needed by the implementing units. Non-consulting services would include office and equipment maintenance, rental expenses, communication costs, transport and insurance. As most of goods consist of readily available off the shelf goods estimated to cost less than the equivalent of US$ 150,000, shopping is the method that will be used in most of the cases. In the event of contract of goods estimated to cost more than the equivalent of US$ 150,000, national competitive bidding following procedures acceptable to the World Bank may be used. The PIM will describe these procedures and furnish the standard bidding document to be used for national competitive bidding and shopping. In situations and circumstances that are in compliance with the provisions of paragraph 3.7 of the guidelines for procurement, direct contracting may be used with World Bank prior review.

187. Selection of consultants: Consultant services to be procured under this grant would include technical assistance to the implementing agency and recruitment of PCU officers. The technical assistance is expected to be provided by individual consultants. Thus, the consultant meeting the requirements of section V of the consultant guidelines may be selected under the provisions for the selection of individual consultants, i.e. in essence through the comparison of the curriculum vitae of at least three qualified individuals. Under circumstance described in para 5.6 of the Consultant Guidelines, contract may be awarded to individual on a single source basis. Consultant firm will be used for the project financial audit. In this case the consultant may be selected under least-cost selection (LCS) in accordance with the provisions of 3.1 and 3.6 of the consultant guidelines. No civil servant can be hired as consultant. Single source selection may be used exceptionally in accordance with paragraph 3.8 to 3.11 of the consultant guidelines.

188. Training: Workshops, conference attendance and study tours would be carried out on the basis of approved semi-annual programs that would identify the general framework of training or similar activities per semester, including the nature of training/study tours/workshops, number of participants, and estimated cost.

189. Operating costs: Operating costs to be financed under the proposed project include the non-consulting services mentioned above, plus per diem, supervision cost, and salaries of PCU staff. These costs shall exclude salaries, bonuses, and fees for government civil servants. These expenses would be procured using procedures acceptable to the World Bank and to be described in the PIM and in the project financial and administrative manual.

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190. PROCUREMENT CAPACITY ASSESSMENT OF THE IMPLEMENTING AGENCY. A procurement capacity assessment of the PCU to implement the project procurement activities has been conducted using the checklist for procurement capacity assessment under OB/BP 8.00. The assessment noted that: (i) the project activities will be carried out by the PCU which implemented the PSDP; (ii) The PCU has gained experience during the execution of the PSDP, in particular they made significant progress with the quality of bidding documents and reports; (iii) there are rooms for improvement in contract administration and procurement record keeping ; (iv) the MCII including the PCU has not also established yet a procurement committee in line with the Interim Public Procurement and Disposal Regulations (IPPDR) and (v) in general the PSDP is operating in weak environment.

191. The project the procurement activities are limited in value and number of contracts. It is essentially constituted of simple procedures such as shopping, direct contracting, individual consultants, consultants’ qualifications, and single source selection; however, the overall procurement risk is rated as substantial due to risk associated to the country environment.

192. SIMPLIFIED PROCUREMENT PLAN. The recipient has developed a simplified procurement plan (SPP) per requirement of OP/BP 8.00 which covers the first twelve months of project implementation. The SPP will be updated on a semi-annually basis or as required to reflect actual project implementation needs.

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GOODS Contract package Estimated

cost (US$) Procurement method

Review by World Bank (prior/ post)

Expected date of bid opening

Computers and printings

30,000 Shopping Post December 2011

Software for project financial management

50,000 Direct contracting Prior December 2011

Office supplies 20,000 Shopping Post December 2011 – March 2012

TOTAL 100,000 CONSULTANTS SERVICES

Contract package Estimated cost (US$)

Selection method Review by World Bank (prior/ post)

Expected proposals submission date

Micro finance TA 200,000 IC/SSS Prior January 2012

Business plan preparation, selection, M&E and capacity building

1,400,000 IC/QCBS Prior April 2012

Mobile banking policy

200,000 IC/SSS Prior January 2012

Trade policy and regional integration

100,000 IC/SSS Prior February 2012

Project management (multiple contracts)

325,000 IC/ SSS Prior (only for ToRs and SSS)

From December 2011 to April 2012 (multiple contract

Financial auditor 75,000 LCS Prior (as first selection for a consulting firm)

January 2012

TOTAL 2,300,000

193. PRIOR REVIEW THRESHOLD. The procurement plan shall set forth those contracts to be subject to the World Bank prior review. No contract is expected to reach the prior review threshold usually established for implementing agencies with limited experience which is of US$500,000 for goods and non consultant services contracts, thus all goods contract will be reviewed through post review, except the first contract awarded using shopping method, the first contract awarded using NCB procedure and all direct contracting.

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194. Consultancy services with firms estimated to cost the equivalent of US$200,000 per contract or more and the first selection of a consulting firm, all contract with individuals estimated to cost the equivalent of US$100,000 or more, all ToRs regardless of contract amount, and all single-source selection of consultants with firms or with individual for assignments estimated to cost above the equivalent of US$50,000 will be subject to the World Bank prior review.

195. POST PROCUREMENT REVIEW. As most of the contracts to be procured under the proposed project are under the prior review threshold, post procurement reviews will be carried out on a regular basis, thus not less than two post procurement review per year would be conducted; during these reviews not less than one out four contracts awarded during last six months will be reviewed.

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Annex 7: Implementation and Monitoring Arrangements


Implementation Arrangements

196. At the operational level, the project is led by MCII, in particularly, by its Directorate for Private Sector Development. The project coordination unit (PCU) will be housed in MCII.

197. Project Coordination Unit: The implementation arrangements for the MDTF-SS funded PSD project have generally worked well and the same would be used for PSD project funded out of the MDTF with some modifications. Chart 1 shows the overall arrangements for project implementation. These include a PCU housed in MCII and a Project Implementation Unit (PIU) in the Bank of South Sudan.

198. Project Staffing: Learning from experience of the MDTF-SS funded PSD project, the PCU will now include a procurement/monitoring and evaluation position. Given that this project will require minimum procurement, and that the performance of BPC should be closely monitored, the current procurement officer will now be responsible for monitoring and evaluation. Technical assistance will be provided for the staff to obtain the necessary skills to perform his duties.

199. The PCU will include a Project coordinator, a Project Accountant, a Procurement/M&E Officer, and a driver. A project office has already been established within the MCII compound for use by PCU/PIU staff and consultants supporting project components, as well as meetings between project teams and stakeholders.

Chart 1. Oversight and Implementation Structure

PSD Director

MCII

Project Coordination Unit

MCII

Component 2, 3.2: Promote

Micro-Entrepreneurship, and Trade Policy

Support

MCII

Component 1, 3.1: Establish Commercially-

Viable MFIs, and Mobile Payments Policy

Support

BoSS SSMDF

Roles: Overall supervision of the PCU Stakeholder coordination Approval of work plans and budgets

Roles:

Project management and execution. Reporting functions Raising policy issues to the

attention of PSD Director and Undersecretary

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200. The arrangements from the proposed project will differ from MDTF-SS project on the following: the PCU will include an environmental specialist to assess safeguard issues related to BPC; SSMDF will be assisted by international consultants rather than the Frankfurt School of Finance and Management; and an independent consultant/agency will carry the preparation of the BPC, including its monitoring and evaluation.

201. With respect to the flow of funds for the sub-grants, a subsidiary grant agreement will be signed between the MCII and BoSS. BoSS will manage the funds of the Southern Sudan Microfinance Development Facility (SSMDF) and will make disbursements on the basis of agreed documentation. With respect to the sub-grants for the Business Plan Competition, the MCII will sign a Memorandum of understanding with the Commercial banks, outlining the terms and conditions of the management of the sub-grants. 202. The Project Implementation Manual (PIM) will determine specific implementation modalities, roles and responsibilities, terms of reference and membership of the bodies involved in oversight and management of the project.

203. The implementation arrangements for the various components are as follows:

Component 1 – Establish Commercially-Viable Microfinance Institutions. BoSS will be the PIU, and will maintain the SSMDF arrangements under the ongoing MDTF-SS funded PSD project. Staffing includes a Team Leader, who will manage day-to-day project activities a Microfinance Officer who will support the MFIs and Administrative Assistant, who will support administrative management of the project component. SSMDF will also be supported by international consultants on a needs basis.

Component 2 – the Directorate of Private Sector Development will serve as the Implementing Agency (PIU) for the BPC, in close coordination with the commercial banks.

Component 3 – Institutional Strengthening of the South Sudan Business Forum and Project Management. The PCU will lead the implementation of this component, in close coordination with the IFC team in charge of the pilot program on Public Private Sector Dialogue.

Monitoring Arrangements

204. The monitoring and evaluation system for the Project will be based on the agreed Results Framework as in Annex 2. M&E will be the responsibility of the PCU, which will collect and compile data and provide the M&E report of the project. By Project Effectiveness, baseline data and target values for all the agreed indicators will be verified and confirmed by the PCU. The primary monitoring mechanism will be quarterly reports and annual reports prepared by the PCU. The reports will assess achievements against the baseline values for all indicators defined in the results framework.

205. Annual project reviews will be conducted in the first six months of the calendar year. The annual review will discuss project progress, performance, outcomes and implementation issues, and include reporting on the monitoring indicators. The PCU will submit quarterly project status reports, including financial and technical reports. These reports will measure disbursement

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against targets, and monitor the operating costs of PCU and PIUs, by providing a detailed breakdown of expenditures made during the previous quarter. The PCU will also prepare and submit to the Association, not later than November 1 of each year, the annual work plan and budget for the project for the subsequent year. The report shall include a procurement plan for activities planned the following year.

206. A Project Mid Term Review will be conducted 18 months after Project Effectiveness with the objective of assessing implementation progress and achievement of PDO and intermediate outcomes. The Mid Term Review will be the basis for restructuring the project design if required to respond to lessons learned from project implementation and ground realities at that point of time. The Mid Term Review reports are prepared by the PCU at least three (3) months before the agreed review date. The Implementation Completion Report (ICR) will be prepared after completion of the Project.

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Annex 8: Economic and Financial Analysis


Background

207. Improved access to financial services is increasingly being recognized as a key component of the development agenda and an important tool to reduce poverty. Inclusive financial systems result in higher growth and incomes by helping individuals and enterprises participate more fully in economic activity and by channeling resources more efficiently across the economy. This is particularly true for micro and small businesses and low income households which face more difficulties in accessing formal financial services due to the low value transaction they require and their higher vulnerability to risks (e.g. risks to their livelihoods posed by sickness and economic fluctuations). Improving access to financial services can help low income households reduce the cost and increase the amount of finance available to them and manage the risks they face more effectively and can help small entrepreneurs expand faster and employ more people.

208. Significant economic benefits are expected to be derived from this project. First, the project will facilitate credit expansion to small businesses and low-income households for selected institutions/individuals which will act as demonstrators, i.e. will prove to the market that lending to the segment can be profitable. Second, the larger BPC loans will allow the entrepreneurs to develop a credit history and for the lending institutions to rely less on collateralized lending. Third, the project will enable participating financial institutions to diversify their lending away from its current focus on large businesses and governmental contractors. Fourth, the project will improve the credit culture and risk management systems in the selected financial institutions overall (i.e. beyond the targeted market segment). In fact it is expected that the lending practices introduced will have spill-over effects by way of enabling financial institutions to apply the same principles and business practices across their entire loan portfolios and business lines. Fifth, reforms of the legal, regulatory and supervisory framework for microfinance and mobile payments will improve the supervision of the sector. Finally all this will translate in better livelihood for low income households. In fact a significant body of research points to a close link between inclusive financial systems, rapid growth and better income distribution18.

Economic Analysis

209. Traditional economic analysis methods are difficult to apply apriori to this type of project which supports microcredit delivery to tens of thousands of individuals, groups of individuals and microenterprises. However, high repayment rates in average microfinance projects (over 90 percent) suggest that the economic rates of return at an individual client business level are positive.

210. With respect to the Business Plan Competition (BPC) repayment rates are indicative of the economic viability of the projects. In the previous round of BPC, out of the 45 entrepreneurs, 20 are current on their repayments (44.5 percent) with nine making payments with one to three

18 For a summary, see, for example, Patrick Honohan et. al., “A Note on Financial Access Indicators”, World Bank, 2005.

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months delays (20 percent) and 11 making payments with 6 months delays. Since most of the businesses are start-up businesses and the majority are in the agriculture sector, the risks associated with these projects are high. Compared to international standards, the rate of success of start-up businesses is around 20 percent. The project will consider supporting more established businesses at a rate of 80 percent and only 20 percent will be earmarked for ‘start-up’ businesses. It is likely that the economic returns for these businesses in the next round of the BPC will be higher, since the expansion of existing businesses will most likely generate higher rates of employment and incomes as opposed to ‘start-up’ businesses.

Financial Analysis

Participating Microfinance Institutions 211. The SSMDF will select potentially qualifying financial institutions eligible for SSMDF financing and technical assistance. MFI financial performance and corporate governance will be a key determinant of access to financing under the project. In order to remain eligible for financing, MFIs will be required to maintain a high quality loan portfolio with no more than five percent Portfolio-at-Risk (past 30 due) by year three, and move towards full financial sustainability (profitability) within a 3-4 year timeframe. Once the new legal framework is in place, all MFIs above a certain size will be expected to carry out annual external audits, according to International Auditing Standards.

212. Financial analysis of the MFIs applying for financing will be a key part of the appraisal and selection process. The eligibility criteria for financing include criteria related to financial management capacity, accounting and internal controls, portfolio quality, loan loss provisioning, profitability, liquidity management and capital adequacy. This will require the procurement and maintenance of a loan tracking system supported by the SSMDF. An independent due diligence of all applicant MFIs will be carried out by SSMDF staff, with the help of consultants if necessary, as part of the MFI selection process. This will include financial analysis to verify the financial soundness of the MFIs and their creditworthiness. During project implementation, the MFIs will submit quarterly financial statements as well as annual external audits. These will form the basis for ongoing financial analysis and supervision throughout the project.

Business Plan Competition 213. A committee will be established to vet the business plan applications as part of the BPC competition. Applications will be vetted on several criteria that will be established prior to implementing this component. The criteria will include the nature of business, the sector, gender of BPC applicant, number of employees projected to be recruited, costs of the project, financing required and components to be financed. The Financial viability of the individual BPC applications will be an integral part of the appraisal and selection process.

Fiscal Impact 214. The fiscal impact of the project is expected to be positive. The total grant is US$9 million. After the initial grants, these will be on-lent from the SSMDF to eligible MFIs with a spread sufficient to cover the cost of capital, operational costs, inflation, expected loan losses and exchange rate risk. On the revenue side, it is expected that micro-lending activities and BPC will help increase business activity and employment, which in turn will help generate increased government tax revenue. It is hoped that during the course of project implementation,

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complimentary efforts to improve the business environment will lead to real improvements for businesses which will encourage them to register, in turn increasing government revenues. Components 3.2 and 4.2 are geared towards improving the business environment in South Sudan and will contribute towards this end.

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Annex 9: Environmental and Social Screening and Assessment Framework

REPUBLIC OF SOUTH SUDAN: Private Sector Development Project 215. A draft Environmental and Social Screening and Assessment Framework (ESSAF) has been prepared for the project and will be finalized during implementation. It provides guidance on the approach to be taken during implementation for the selection and design of subprojects/proposed investments and the planning and mitigation measures, including consultation and disclosure requirements, to ensure due diligenceand facilitate consistent treatment of environmental and social issues by all participating development partners. This includes proper pest management practices, selection of crops, use of organic pesticides, and improved agricultural practices. The ESSAF contains checklists, plans for pest management and mitigation management matrices for identified environmental and social impacts in accordance with project activities. Per the requirements of OP 8.00, safeguards documents will be prepared once emergency needs are addressed during project implementation.

I. Objectives 216. This ESSAF is consistent with World Bank operational policies and procedures, investment operations subject to OP/BP 8.00, Rapid Response to Crises and Emergencies, and the guidance note for crises and emergency operations for application of World Bank safeguard and disclosure policies. The ESSAF provides general policies, guidelines, codes of practice and procedures to be integrated into the implementation of the World Bank financed South Sudan Private Sector Development project.

217. The proposed project have four components and from these only Component 2 involves in catalyze entrepreneurship through a Business Plan Competition (BPC) for existing businesses and start-ups to conduct various activities across different sectors such as light manufacturing, services, poultry farms, and agriculture that triggered the World Bank safeguards policies (Environmental Assessment (OP 4.01) and Pest Management (OP 4.09). These activities are likely to generate negative environmental and social impacts, but the potential impacts are likely to be small and localized in effect and can be easily mitigated by implementing the recommendations indicated in the project specific ESSAF. This Framework has been developed to ensure compliance with the World Bank’s safeguard policies during the implementation of the emergency project. The Framework draws on policy guidance for and past experience in implementing environmental and social safeguards in South Sudan. Additional material on impacts and mitigation measures may be added to the ESSAF during implementation once the civil works and sites are finalized.

218. The objective of the ESSAF is to ensure that activities under the proposed emergency operation address the following issues:

Provide a framework for integration of social and environmental considerations in all stages of subproject design and execution;

Support compliance and avoid and/or minimize adverse social and environmental impacts;

Protect human health;

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Prevent environmental degradation as a result of individual subproject activities or their cumulative impacts;

Ensure compliance with all national laws, regulations, and policies;

Ensure appropriate institutional arrangements for implementing measures detailed in the ESSAF;

Minimize environmental degradation as a result of either individual subprojects or their cumulative effects;

Avoid and/or Minimize the possible impacts to the nearby physical and social environment due to the inappropriate use of agricultural inputs (Fertilizers, pesticides, herbicides, etc);

Protect human health;

Improve agricultural productivity that contribute for ensuring food security and improve livelihood of the community;

Enhance positive environmental, economic and social outcomes of project interventions; and

Prevent or compensate any loss of livelihood.

II. Project Description

219. The project consists of the following four components: Component 1: Establish Commercially-Viable Microfinance Institutions (US$ 2.8 million). There are two sub-components under this component. The first sub-component will provide technical and financial support to MFIs, promoting the start up and expansion of microfinance providers and services throughout South Sudan. This will be in an amount of US$1.9 million, (US$1.5 million for loan capital and US$0.4 million for technical assistance for MFIs). The MFIs will provide micro-lending to micro-borrowers for various commercial activities that are concentrated on trade and agriculture. Technical and financial support will be provided to strengthen the institutional and financial capacity of microfinance providers who have the potential to operate on a sustainable basis. Technical and financial support will strengthen the institutional and financial capacity and performance of diverse MF providers. This component will provide funding for institution-building and delivery of microfinance services, as well as financing for training and technical consulting services, MIS and other capacity building activities for microfinance providers, service providers to the sector, and staff and Board of the facility itself. The second sub-component will support the operating costs of the South Sudan Microfinance Development Facility (SSMDF) for a period of 3 years in an amount of US$0.9 million. The SSMDF is a microfinance Apex institution established in 2009 under the MDTF-SS funded PSD project with a corporate structure equivalent to a state owned enterprise, and serves as a wholesale microfinance body for South Sudan.

220. Component 2: Promote Micro-Entrepreneurship (US$ 4.4 million). This component will catalyze entrepreneurship through a Business Plan Competition (BPC) for existing businesses and start-ups. A total of US$3 million will be earmarked to support at least 100 entrepreneurs with sub-grants in the amount of up to US$20,000 to be used as block collateral

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for loans provided by commercial banks. A total of US$ 1.4 million will be allocated for the preparation, technical assistance, and M&E for the BPC. Under this component, some of the loans will be used to finance activities across different sectors such as light manufacturing, services, poultry farms, and agriculture.


222. Component 3: Mobile Payments and Trade Integration Policy Support (US$ 0.3 million). This component will support the development of a regulatory framework for mobile banking and payments and provide long term advisory services on Trade harmonization for South Sudan, including consideration of South Sudan’s potential membership to the East African Community (EAC).

223. Component 4: Institutional Strengthening of the South Sudan Business Forum and Project Management (US$ 1.5 million). This component will finance the activities and operating costs of the Project Coordination Unit (PCU) which is responsible for coordinating and monitoring activities implemented by the project. It will also support technical assistance and training to build the institutional capacity of the MCII staff responsible for the development of the Private Sector in South Sudan.

224. This component will also cater for the operating and staffing costs of the South Sudan Business Forum (SSBF), a Public-Private Sector Development Forum, established in 2009, under the MDTF-SS PSD Project.

III. General Principles

225. Recognizing the emergency nature of the proposed emergency operation and the related need for providing immediate assistance, while at the same time ensuring due diligence in managing potential environmental and social risks, the ESSAF is based on the following principles:

The proposed operation will support multiple subprojects the detailed designs of which may not be known at appraisal. To ensure effective application of the World Bank’s safeguard policies, the ESSAF provides guidance on the approach to be taken during Project implementation for the selection of subprojects and the adoption and monitoring of appropriate mitigation measures;

All subprojects will be thoroughly screened to ensure that the environmental and social risks associated with specific investments can be adequately addressed through application of standard mitigation measures;

No resettlement issues are expected in any of the proposed sub-projects under the emergency Project. Project design and subproject selection will aim at maintaining

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regional balance and equity among ethnic religious groups, considering variations in population density. Employment opportunities within the projects will be targeted to the extent possible at the affected communities and households and available on an equal basis to all, on the basis of professional competence, irrespective of gender or ethnic or religious group. In all sub-projects which require consultations with local communities or beneficiaries, consultations will be conducted to elicit the views of the communities both male and female population with in and around the project area;

Consultation and disclosure requirements will be designed to meet the needs of the proposed project and the operating environment within which the project is prepared. This ESSAF is being disclosed as an annex of the Emergency Project Paper; and

Environmental category ‘B’ subprojects are expected from component 2 of the proposed project which triggers the OP 4.01 and OP 4.09 of World Bank safeguard policies. Based on the recommendation listed in this ESSAF, the proposed project will prepare a pest management plan as and when required.

IV. Environmental and Social Screening and Assessment Framework (ESSAF) 226. This ESSAF has been developed specifically for these proposed operations to ensure due diligence, to avoid causing harm or exacerbating social tensions, and to ensure consistent treatment of social and environmental issues by all donors and the Government of Republic of South Sudan. The purpose of this Framework is also to assist the Project Coordination Unit under the MCI in screening all the project components for their likely social and environmental impacts, identifying documentation and preparation requirements and prioritizing the investments.

227. OP 4.01 Environmental Assessment. The Project will continue to carry out some of the activities initiated under Phase I, but will focus primarily on activities that enhance job creation opportunities, specifically revolving around up-scaling the establishment of a commercially viable microfinance sector, and catalyzing entrepreneurship through another round of the Business Plan Competition (BPC) targeting active youth, men and women. These activities may include an agriculture, poultry and light manufacturing, which may generate adverse environmental and social impacts and need to be mitigated. The work in these areas will be managed under World Bank Operational Policies OP 4.01.

228. Considering the nature and magnitude of potential environmental impacts from relatively limited scale and magnitude of project activities, the proposed operations are likely to be classified as category ‘B’. Given the relatively moderate environmental and social impacts of the project, a partial Environmental and Social Impact Assessment and/or Environmental and Social Management Plan will be prepared during project implementation. For small-scale construction and civil works, prior to sub-project appraisal, the implementing agency will agree to apply the following minimum standards during implementation: inclusion of standard environmental codes of practice (ECOP) in the rehabilitation, improvement and construction bid documents of all subprojects; review and oversight of any major reconstruction works by specialists; implementation of environmentally and socially sound options for disposal of debris or drain spoils; and provisions for adequate budget and satisfactory institutional arrangements for monitoring effective implementation.

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229. OP 4.04 Natural Habitat. The proposed project does not include any subprojects that would trigger this OP 4.04.

230. OP 4.09 Pest Management. The proposed Agriculture and poultry activities under component 2 are expected to pose risks of pest management (OP 4.09) safeguard policies. The project will use the ESSAF to guide the management of any potential adverse environmental resulting from the use of pesticides during project implementation. An Integrated Pest Management Plan (IPMP) will be prepared, consulted upon, and disclosed in-country and at the InfoShop prior to actual implementation of the agricultural activities.

231. OD 4.10 Indigenous Peoples. The proposed sub-projects are not expected to trigger this safeguard policy.

232. OP 4.11 Physical Cultural Resources. The proposed operations are not expected to trigger this policy.

233. OP 4.12 Involuntary Resettlement. The proposed sub-projects are not expected to trigger this policy. If any sub-project involves land acquisition/involuntary resettlement, the project will be restructured and OP 4.12 triggered. The ESSAF will be accordingly updated.

234. OP 4.36 Forests. The proposed sub projects are not expected to trigger this safeguard policy.

235. OP 4.37 Safety of Dams. The proposed project does not include construction of any dams and therefore this OP 4.37 would not be triggered.

236. OP 7.50 Projects on International Waterways. The proposed project does not include any subprojects that would trigger this OP 7.50.

237. OP 7.60 Projects in Disputed Areas. The proposed project does not include any subprojects that would trigger this OP 7.60.

IV. Safeguard Screening and Mitigation 238. The selection, design, contracting, monitoring and evaluation of subprojects will be consistent with the following guidelines, codes of practice and requirements. The safeguard screening and mitigation process will include:

A list of negative characteristics rendering a proposed subproject ineligible for support, Attachment 1;

A proposed checklist of likely environment and social impacts to be filled out for each subproject or group of subprojects, Attachment 2;

Checklist of Possible Environmental and Social Impacts of Projects Attachment 3; Relevant elements of the codes of practice for the prevention and mitigation of potential

environmental impacts, Attachment 4; A sample Environmental Safeguards procedures for Inclusion in the Technical

Specifications of Contracts, Attachment 5; and

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Integrated Pest Management (IPM) Principles Attachment 6.

V. Responsibilities for Safeguard Screening and Mitigation 239. The PCU does not have the capacity to manage safeguard issues. Therefore, the project will recruit an environmental specialist who will develop, implement and monitor the environmental and safeguard tools and provide technical support to the PCU and other respective line ministries to build capacity for safeguard compliance.

VI. Capacity-Building and Monitoring of Safeguard Framework Implementation 240. As part of the capacity-building to be provided for implementation of the proposed operations, the PCU will recruit an environmental and social consultant who will be responsible for following safeguards issues and concerns, and, in particular, work with the PCU environmental and social specialist in applying the screening checklists to various sub-projects.

241. To assist in this capacity-building, and to provide subsequent guidance and review of the ESSAF’s application, the World Bank environmental and social safeguard specialists in the project task team will provide guidance to the PCU staff and safeguard specialist. As part of the capacity-building to be provided for implementation of the proposed operations, the Safeguards Focal Points and relevant staff of the concerned Ministries will also receive training in ESSAF’s application. During supervision of these operations, the World Bank will assess the implementation of the ESSAF, and recommend additional strengthening, if required. VII. Consultation and Disclosure 242. This draft ESSAF has been shared with the Government of Republic of South Sudan, concerned NGOs and other development partners. It is being disclosed in country and at the World Bank’s InfoShop as an annex to the Emergency Project Paper.

243. For the any sub-project investments, the implementing agency will consult project-affected groups and local nongovernmental organizations on the project's environmental and social aspects, and will take their views into account. The implementing agency will initiate these consultations as early as possible, and for meaningful consultations, will provide relevant material in a timely manner prior to consultation, in a form and language(s) that are understandable and accessible to the groups being consulted.

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Attachment 1 List of Negative Subproject Attributes

Subprojects with any of the attributes listed below will be ineligible for support under the proposed Private Sector Development project

Attributes of Ineligible SubprojectsGENERAL CHARACTERISTICS

Concerning significant conversion or degradation of critical natural habitats. Including, but not limited to, any activity within: � Wildlife Reserves; � Ecologically-sensitive marine and terrestrial ecosystems; � Parks or Sanctuaries; and � Protected areas.

Damages cultural property, including but not limited to, any activities that affect the following sites: � Archaeological or historical sites; � Religious monuments or structures; � Works of art; � Natural sites with cultural values including cemeteries, graveyards, and graves; and � Sites of significance points of view. Drinking Water Supply New or expanded of piped water schemes to serve 10,000 or more households. Sanitation New wastewater treatment plants to serve 10,000 or more households. Solid Waste New disposal site or significant expansion of an existing disposal site. Irrigation New irrigation and drainage schemes. Income Generating Activities Activities involving the use of fuel wood, including trees and bush. Activities involving the use of hazardous substances.

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Attachment 2

Checklist of Possible Environmental and Social Impacts of Projects This Form is to be used by the Safeguard Specialist (SP) or Project Coordination Unit (PCU) in Screening Subproject Applications. Note: One copy of this form and accompanying documentation to be kept in the PCU office and one copy to be sent to the task team leader of the World Bank. Name of Subproject: Number of Subproject: Proposing Agency: Subproject Location: Subproject Objective: Infrastructure to be rehabilitated: Estimated Cost: Proposed Date of Commencement of Work: Technical Drawing/Specifications Reviewed (circle answer): Yes __ No __

Checklist of Possible Environmental and Social Impacts of Projects I. Subproject Related Issues S No ISSUES

YES

NO

Comments

A. Zoning and Land Use Planning

1. Will the subproject affect land use zoning and planning or conflict with prevalent land use patterns?

2. Will the subproject involve significant land disturbance or site clearance?

3.

Will the subproject land be subject to potential encroachment by urban or industrial use or located in an area intended for urban or industrial development?

B. Utilities and Facilities

4. Will the subproject require the setting up of ancillary production facilities?

5. Will the subproject make significant demands on

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utilities and services?

6.

Will the subproject require significant levels of accommodation or service amenities to support the workforce during construction (e.g., contractor will need more than 20 workers)?

C Water and Soil Contamination

6. Will the subproject require large amounts of raw materials or construction materials?

7.

Will the subproject generate large amounts of residual wastes, construction material waste or cause soil erosion?

8.

Will the subproject result in potential soil or water contamination (e.g., from oil, grease and fuel from equipment yards)?

9.

Will the subproject lead to contamination of ground and surface waters by herbicides for vegetation control and chemicals (e.g., calcium chloride) for dust control?

10.

Will the subproject lead to an increase in suspended sediments in streams affected by road cut erosion, decline in water quality and increased sedimentation downstream?

11. Will the subproject involve the use of chemicals or solvents?

12.

Will the subproject lead to the destruction of vegetation and soil in the right-of-way, borrow pits, waste dumps, and equipment yards?

13.

Will the subproject lead to the creation of stagnant water bodies in borrow pits, quarries, etc., encouraging for mosquito breeding and other disease vectors?

D. Noise and Air Pollution Hazardous Substances

14. Will the subproject increase the levels of harmful air emissions?

15. Will the subproject increase ambient noise levels?

16. Will the subproject involve the storage, handling or transport of hazardous substances?

E. Fauna and Flora

18.

Will the subproject involve the disturbance or modification of existing drainage channels (rivers, canals) or surface water bodies (wetlands, marshes)?

19.

Will the subproject lead to the destruction or damage of terrestrial or aquatic ecosystems or endangered species directly or by induced development?

20. Will the subproject lead to the disruption/destruction of wildlife through interruption of migratory routes,

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disturbance of wildlife habitats, and noise-related problems?

F. Destruction/Disruption of Land and Vegetation

21. Will the subproject lead to unplanned use of the infrastructure being developed?

22.

Will the subproject lead to long-term or semi-permanent destruction of soils in cleared areas not suited for agriculture?

23.

Will the subproject lead to the interruption of subsoil and overland drainage patterns (in areas of cuts and fills)?

24. Will the subproject lead to landslides, slumps, slips and other mass movements in road cuts?

25.

Will the subproject lead to erosion of lands below the roadbed receiving concentrated outflow carried by covered or open drains?

26.

Will the subproject lead to long-term or semi-permanent destruction of soils in cleared areas not suited for agriculture?

27.

Will the subproject lead to health hazards and interference of plant growth adjacent to roads by dust raised and blown by vehicles?

G. Cultural Property

28. Will the subproject have an impact on archaeological or historical sites, including historic urban areas?

29. Will the subproject have an impact on religious monuments, structures and/or cemeteries?

30. Have Chance Finds procedures been prepared for use in the subproject?

H. Expropriation and Social Disturbance

31. Will the subproject involve land expropriation or demolition of existing structures?

32.

Will the subproject lead to induced settlements by workers and others causing social and economic disruption?

33. Will the subproject lead to environmental and social disturbance by construction camps?

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Attachment 3 Site Characteristics

S.No ISSUES YES NO Comments 1. Is the subproject located in an area with designated

natural reserves?

2. Is the subproject located in an area with unique natural features?

3. Is the subproject located in an area with endangered or conservation-worthy ecosystems, fauna or flora?

4. Is the subproject located in an area falling within 500 meters of national forests, protected areas, wilderness areas, wetlands, biodiversity, critical habitats, or sites of historical or cultural importance?

5. Is the subproject located in an area which would create a barrier for the movement of conservation-worthy wildlife or livestock?

6.

Is the subproject located close to groundwater sources, surface water bodies, watercourses or wetlands?

7. Is the subproject located in an area with designated cultural properties such as archaeological, historical and/or religious sites?

8. Is the subproject in an area with religious monuments, structures and/or cemeteries?

9. Is the subproject in a polluted or contaminated area? 10. Is the subproject located in an area of high visual and

landscape quality?

11. Is the subproject located in an area susceptible to landslides or erosion?

12. Is the subproject located in an area of seismic faults? 13. Is the subproject located in a densely populated area? 14. Is the subproject located on prime agricultural land? 15. Is the subproject located in an area of tourist

importance?

16. Is the subproject located near a waste dump? 17. Does the subproject have access to potable water? 18. Is the subproject located far (1-2 kms ) from

accessible roads?

19. Is the subproject located in an area with a wastewater network?

20. Is the subproject located in the urban plan of the city? 21. Is the subproject located outside the land use plan? Signed by Environment Specialist: Name: _______________________________

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Title: _______________________________ Date: _______________________________ Signed by Project Manager: Name: _______________________________ Title: _______________________________ Date: _______________________________

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Attachment 4 Codes of Practice for Prevention and Mitigation of Environmental Impacts

Potential Impacts Prevention and Mitigation Measures Agriculture: Includes

investments in livestock (grazing, slaughterhouses, veterinary clinics), fisheries, forestry and irrigation

Livestock: Unsustainable

grazing; slaughterhouse waste runoff affecting clean water supply; construction disturbances (dust, noise, contamination from inadequate sanitation facilities) for infrastructure renovations such as wholesale food markets, laboratories, research centers, training centers, holding grounds, quarantine points and livestock production infrastructure (rehabilitation of water points and stock routes), temporary and/or permanent displacement of communities or loss of assets; inadequate handling and disposal of veterinary waste (including vaccines, drugs, syringes).

Fisheries: Improper

distribution, application, storage or disposal of bactericides used in fish processing activities.

Preparation of an ESMP that would include the following features, depending on the type of investment:

Before livestock are purchased, grazing requirements

for the new herd should be calculated and legal access to sufficient sustainable grazing ensured.

Ongoing TA to strengthen slaughterhouse and

holding ground sanitary inspection and certification services should be provided and training for meat inspectors on consistent environmental quality control measures should be offered.

Adoption of standard construction technical

specifications to minimize adverse impacts.

Access to veterinary services should be established at holding grounds with adequate and secure mechanisms (including preparation of a veterinary medical waste management plan) for veterinary waste disposal to prevent cross-contamination.

Preparation of a IPM approach for fisheries sector

activities to ensure proper handling, use and disposal of bactericides.

Soil and water conservation interventions.

Plan disposal of spoil material from cleaned canals to

ensure it will not wash back into the system, and is not deposited on fields.

Re-grading and rehabilitation of borrow areas or pits. Incorporation of adequate drainage to prevent water-

logging and salinization. Analysis of the sustainability of groundwater yield, if

increased abstraction is proposed.

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Potential Impacts Prevention and Mitigation Measures Forestry: Adoption of

improved technologies in agro-forestry designed to promote innovation (e.g. seed multiplication, water management, organic farming, farm power, improved varieties) may lead to soil erosion, land degradation, displacement, deforestation, habitat destruction and loss of fauna and flora.

Irrigation: Siltation and

erosion; water-logging and salinization; over-exploitation of aquifers.

Construction of Buildings Construction or rehabilitation of buildings and refurbishment of offices and facilities

Disease caused by inadequate provision of water and sanitation services.

Deforestation caused by

unsustainable use of timber and wood-firing of bricks.

Generation of waste

materials. Disturbances during

construction (dust, noise) and contamination from inadequate sanitation facilities.

Environmentally appropriate site selection led by application of the environmental and social screening form provided in this ESSAF, design and construction guidance, and a procedure for ensuring that this guidance is followed before construction is approved.

Replace timber beams with concrete where structurally

possible. Ensure fired bricks are not wood-fired. Where

technically and economically feasible, substitute fired bricks with alternatives, such as sun-dried mud bricks, compressed earth bricks, or rammed earth construction.

Ensure engineering designs include adequate sanitary

latrines and access to safe water. Handling of waste during building renovation will

require appropriate disposal of waste materials and the protection of the workforce in the event of asbestos removal or that of other toxic materials.

Roads Rehabilitation/improvement of urban roads

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Potential Impacts Prevention and Mitigation Measures Disruption of drainage: Hampers free drainage, causes

stagnant pools of water. Increased sediments into

ponds, streams and rivers due to erosion from road tops and sides.

Increased run-off and flooding.

Design to provide adequate drainage and to minimize

changes in flows, not limited to the road reserve. Provision of energy dissipaters, cascades, steps, and

checks dams. Provision of sufficient number of cross drains. Balancing of cut and fill. Revegetation to protect susceptible soil surfaces. Rehabilitation of borrow areas.

Erosion: Erosion of land downhill

from the road bed, or in borrow areas.

Landslides, slips or

slumps. Bank failure of the

borrow pit.

Design to prevent soil erosion and maintain slope stability. Construction in the dry season. Protection of soil surfaces during construction. Physical stabilization of erodible surfaces through turfing,

planting a wide range of vegetation, and creating slope breaks.

Rehabilitation and re-grading of borrow pits and material collection sites.

Loss of vegetation.

Balancing of cut and fill. Revegetation to protect susceptible soil surfaces. Minimize loss of natural vegetation during

construction. Revegetation and replanting to compensate any loss

of plant cover or tree felling. Loss of access.

Design to include accessibility to road sides in case

roadbed is raised. Alternative alignments to avoid bisecting villages by road

widening.

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Potential Impacts Prevention and Mitigation Measures Impacts during construction: Fuelwood collection. Disease due to lack of

sanitation. Introduction of hazardous

wastes. Groundwater contamination

(oil, grease). Accidents during

construction. Potential impacts to cultural

property.

Provision of fuel at work camps to prevent cutting of

firewood. Provision of sanitation at work camps. Removal of work camp waste, proper disposal of oil,

bitumen and other hazardous wastes. Management of construction period worker health and

safety. Use archaeological chance find procedures and coordinate

with appropriate agencies. Increased migration from

nearby cities.

Provide comprehensive community participation in

planning, and Migration issue to be resolved through local conflict resolution system.

Water Supply

Installation or rehabilitation of tubewells or dug wells. Disease caused by poor water quality: contamination by

seepage from latrines. creation of stagnant pools

of water.

Redesign to prevent contamination if adjacent

comparable sources are found to be contaminated. Subsequent monitoring of installed or rehabilitated

sources. Appropriate location, apron and drainage around tube

wells and dug wells to prevent formation of stagnant pools.

Provision of cover and hand-pump to prevent contamination of dug wells.

Where pit latrines are used they should be located more than 10m from any water source. The base should be sealed and separated by at least 2m of sand or loamy soil from the groundwater table.

Where nightsoil latrines or septic tanks are built they should be sealed. Outflows should drain either to a soak away located at least 10m from any water source or be connected to a working drain.

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Potential Impacts Prevention and Mitigation Measures Social Risks: Lack of clear division of

rights/ responsibilities may result in maintenance problems of wells/pumps.

Access to water may be captured by interest groups.

Use of foreign equipment/ materials may hinder maintenance of pumps/wells.

Ensure sufficient community participation and

organization for effective planning and management of infrastructure.

Identify proper mechanism of rights and responsibilities over well/pump/reservoir usage through participatory village focus groups.

Ensure that local accessible materials are used when developing/rehabilitating wells in order to provide maintenance.

Sanitation and Wastewater Latrines, cesspits.

Contamination of water supplies: contamination of

groundwater because of seepage.

contamination of surface waters due to flooding or over-flowing.

Where pit latrines are used they should be located

more than 10m from any water source. The base should be sealed and separated vertically by not less than 2m of sand or loamy soil from the groundwater table.

Where nightsoil latrines or septic tanks are built they should be sealed. Outflows should drain either to a soak away located at least 10m from any water source or be connected to a working drain.

Maintenance training to be delivered along with new latrines.

Disease caused by poor handling practices of nightsoil.

Training and health education to be provided to

nightsoil handlers where affected by interventions. Protective clothing and appropriate containers for

nightsoil transportation to be provided.

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Potential Impacts Prevention and Mitigation Measures Disease caused by inadequate excreta disposal or inappropriate use of latrines.

Night soil should be handled using protective

clothing to prevent any contamination of workers skin or clothes.

Where night soil is collected for agricultural use it should be stored for a sufficient period to destroy pathogens through composting. At the minimum it should be stored in direct sunlight and turned regularly for a period of at least 6 weeks.

Septic tanks should not be constructed nor septic waste collected unless primary and secondary treatment and safe disposal is available.

Health and hygiene education to be provided for all users of latrines.

Awareness campaign to maintain sanitary conditions. Disease caused by inadequate collection and disposal, including health risks from: insects, rats. burning of waste.

Sufficient frequency of collection from transfer

stations. Containment of waste during collection and transfer. Promote separation at source to reduce spreading by

rag-pickers during recycling. Minimize burning. Provide daily soil covering.

Solid Waste Generation Solid waste generation across sectors

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Potential Impacts Prevention and Mitigation Measures Disease caused by

inadequate collection and disposal, including health risks from: pests, burning of solid waste and industrial waste.

Contamination of water

supply. Lateral seepage into surface

waters. Seepage of contaminants into

aquifers. Contamination from

clandestine dumping.

Solid waste management plan to include the following elements:

Safe waste disposal awareness program. Sufficient frequency of collection from transfer stations. Containment of waste during collection and transfer. Promote separation at source to reduce spreading by

waste-pickers during recycling. Minimize burning of plastics. Separate collection and disposal system for medical or

hazardous waste. Assess requirement for additional investment in final

disposal site. Site transfer stations should have sealed base and be

located at least 15m away from water sources with the base separated vertically by not less than 2m of sand or loamy soil from the ground water table.

Monitoring of disposal site to prevent illegal dumping.

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Attachment 5 Safeguards Procedures for Inclusion in the Technical Specifications of Contracts

I. General 1. The Contractor and his employees shall adhere to the mitigation measures set down and take all other measures required by the Engineer to prevent harm, and to minimize the impact of his operations on the environment. 1. The Contractor shall not be permitted to unnecessarily strip clear the right of way. The

Contractor shall only clear the minimum width for construction and diversion roads should not be constructed alongside the existing road.

2. Remedial actions which cannot be effectively carried out during construction should be carried out on completion of each Section of the road (earthworks, pavement and drainage) and before issuance of the Taking over certificate: (a) these sections should be landscaped and any necessary remedial works should be undertaken

without delay, including grassing and reforestation; (b) water courses should be cleared of debris and drains and culverts checked for clear flow

paths; and (c) borrow pits should be dressed as fish ponds, or drained and made safe, as agreed with the

land owner. 3. The Contractor shall limit construction works to between 6 am and 7 pm if it is to be carried out in or near residential areas. 4. The Contractor shall avoid the use of heavy or noisy equipment in specified areas at night, or in sensitive areas such as near a hospital. 5. To prevent dust pollution during dry periods, the Contractor shall carry out regular watering of earth and gravel haul roads and shall cover material haulage trucks with tarpaulins to prevent spillage. II. Transport 6. The Contractor shall use selected routes to the project site, as agreed with the Engineer, and appropriately sized vehicles suitable to the class of road, and shall restrict loads to prevent damage to roads and bridges used for transportation purposes. The Contractor shall be held responsible for any damage caused to the roads and bridges due to the transportation of excessive loads, and shall be required to repair such damage to the approval of the Engineer. 7. The Contractor shall not use any vehicles, either on or off road with grossly excessive, exhaust or noise emissions. In any built up areas, noise mufflers shall be installed and maintained in good condition on all motorized equipment under the control of the Contractor.

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8. Adequate traffic control measures shall be maintained by the Contractor throughout the duration of the Contract and such measures shall be subject to prior approval of the Engineer. III. Workforce 9. The Contractor should whenever possible locally recruit the majority of the workforce and shall provide appropriate training as necessary. 10. The Contractor shall install and maintain a temporary septic tank system for any residential labor camp and without causing pollution of nearby watercourses. 11. The Contractor shall establish a method and system for storing and disposing of all solid wastes generated by the labor camp and/or base camp. 12. The Contractor shall not allow the use of fuel wood for cooking or heating in any labor camp or base camp and provide alternate facilities using other fuels. 13. The Contractor shall ensure that site offices, depots, asphalt plants and workshops are located in appropriate areas as approved by the Engineer and not within 500 meters of existing residential settlements and not within 1,000 meters for asphalt plants. 14. The Contractor shall ensure that site offices, depots and particularly storage areas for diesel fuel and bitumen and asphalt plants are not located within 500 meters of watercourses, and are operated so that no pollutants enter watercourses, either overland or through groundwater seepage, especially during periods of rain. This will require lubricants to be recycled and a ditch to be constructed around the area with an approved settling pond/oil trap at the outlet. 15. The contractor shall not use fuel wood as a means of heating during the processing or preparation of any materials forming part of the Works. IV. Quarries and Borrow Pits 16. Operation of a new borrow area, on land, in a river, or in an existing area, shall be subject to prior approval of the Engineer, and the operation shall cease if so instructed by the Engineer. Borrow pits shall be prohibited where they might interfere with the natural or designed drainage patterns. River locations shall be prohibited if they might undermine or damage the river banks, or carry too much fine material downstream. 17. The Contractor shall ensure that all borrow pits used are left in a trim and tidy condition with stable side slopes, and are drained ensuring that no stagnant water bodies are created which could breed mosquitoes. 18. Rock or gravel taken from a river shall be far enough removed to limit the depth of material removed to one-tenth of the width of the river at any one location, and not to disrupt the river flow, or damage or undermine the river banks.

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19. The location of crushing plants shall be subject to the approval of the Engineer, and not be close to environmentally sensitive areas or to existing residential settlements, and shall be operated with approved fitted dust control devices. V. Earthworks 20. Earthworks shall be properly controlled, especially during the rainy season. 21. The Contractor shall maintain stable cut and fill slopes at all times and cause the least possible disturbance to areas outside the prescribed limits of the work. 22. The Contractor shall complete cut and fill operations to final cross-sections at any one location as soon as possible and preferably in one continuous operation to avoid partially completed earthworks, especially during the rainy season. 23. In order to protect any cut or fill slopes from erosion, in accordance with the drawings, cut off drains and toe-drains shall be provided at the top and bottom of slopes and be planted with grass or other plant cover. Cut off drains should be provided above high cuts to minimize water runoff and slope erosion. 24. Any excavated cut or unsuitable material shall be disposed of in designated tipping areas as agreed to by the Engineer. 25. Tips should not be located where they can cause future slides, interfere with agricultural land or any other properties, or cause soil from the dump to be washed into any watercourse. Drains may need to be dug within and around the tips, as directed by the Engineer. VI. Historical and Archeological Sites 26. If the Contractor discovers archeological sites, historical sites, remains and objects, including graveyards and/or individual graves during excavation or construction, the Contractor shall:

a. Stop the construction activities in the area of the chance find. b. Delineate the discovered site or area. c. Secure the site to prevent any damage or loss of removable objects. In cases of

removable antiquities or sensitive remains, a night guard shall be present until the responsible local authorities and the Ministry of Culture, Youth and Sports take over.

d. Notify the supervisory Engineer who in turn will notify the responsible local authorities and the Ministry of Culture, Youth and Sports immediately (less than 24 hours).

e. Contact the responsible local authorities and the Ministry of Culture, Youth and Sports who would be in charge of protecting and preserving the site before deciding on the proper procedures to be carried out. This would require a preliminary evaluation of the findings to be performed by the archeologists of the

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relevant Ministry Culture, Youth and Sports (within 72 hours). The significance and importance of the findings should be assessed according to the various criteria relevant to cultural heritage, including the aesthetic, historic, scientific or research, social and economic values.

f. Ensure that decisions on how to handle the finding be taken by the responsible authorities and the Ministry of Culture, Youth and Sports. This could include changes in the layout (such as when the finding is an irremovable remain of cultural or archeological importance) conservation, preservation, restoration and salvage.

g. Implementation for the authority decision concerning the management of the finding shall be communicated in writing by the Ministry of Culture, Youth and Sports; and

h. Construction work will resume only after authorization is given by the responsible local authorities and the Ministry of Culture, Youth and Sports concerning the safeguard of the heritage.

VII. Disposal of Construction and Vehicle Waste 27. Debris generated due to the dismantling of the existing structures shall be suitably reused, to the extent feasible, in the proposed construction (e.g. as fill materials for embankments). The disposal of remaining debris shall be carried out only at sites identified and approved by the project engineer. The contractor should ensure that these sites (a) are not located within designated forest areas; (b) do not impact natural drainage courses; and (c) do not impact endangered/rare flora. Under no circumstances shall the contractor dispose of any material in environmentally sensitive areas. 28. In the event any debris or silt from the sites is deposited on adjacent land, the Contractor shall immediately remove such, debris or silt and restore the affected area to its original state to the satisfaction of the Supervisor/Engineer. 29. Bentonite slurry or similar debris generated from pile driving or other construction activities shall be disposed of to avoid overflow into the surface water bodies or form mud puddles in the area. 30. All arrangements for transportation during construction including provision, maintenance, dismantling and clearing debris, where necessary, will be considered incidental to the work and should be planned and implemented by the contractor as approved and directed by the Engineer. 31. Vehicle/machinery and equipment operations, maintenance and refueling shall be carried out to avoid spillage of fuels and lubricants and ground contamination. An oil interceptor will be provided for wash down and refueling areas. Fuel storage shall be located in proper bounded areas. 32. All spills and collected petroleum products shall be disposed of in accordance with standard environmental procedures/guidelines. Fuel storage and refilling areas shall be located at least

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300m from all cross drainage structures and important water bodies or as directed by the Engineer.

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Attachment 6 Integrated Pest Management (IPM) Principles

1. Integrated Pest Management (IPM) is an effective and environmentally sensitive approach to pest management that relies on a combination of common-sense practices. IPM programs use current, comprehensive information on the life cycles of pests and their interaction with the environment. This information, in combination with available pest control methods, is used to manage pest damage by the most economical means, and with the least possible hazard to people, property, and the environment. 2. The IPM approach can be applied to both agricultural and non-agricultural settings, such as the home, garden, and workplace. IPM takes advantage of all appropriate pest management options including, but not limited to, the judicious use of pesticides. In contrast, organic food production applies many of the same concepts as IPM but limits the use of pesticides to those that are produced from natural sources, as opposed to synthetic chemicals. 3. IPM is not a single pest control method but, rather, a series of pest management evaluations, decisions and controls. In practicing IPM, implementing agencies who are aware of the potential for pest infestation and/or agricultural activities follow a four-tiered approach. The four steps include:

o Set Action Thresholds: Before taking any pest control action, IPM first sets an action threshold, a point at which pest populations or environmental conditions indicate that pest control action must be taken. Sighting a single pest does not always mean control is needed. The level at which pests will either become an economic threat is critical to guide future pest control decisions.

o Monitor and Identify Pests: Not all insects, weeds, and other living organisms require

control. Many organisms are innocuous, and some are even beneficial. IPM programs work to monitor for pests and identify them accurately, so that appropriate control decisions can be made in conjunction with action thresholds. This monitoring and identification removes the possibility that pesticides will be used when they are not really needed or that the wrong kind of pesticide will be used.

o Prevention: As a first line of pest control, IPM programs work to manage the crop, lawn,

or indoor space to prevent pests from becoming a threat. In an agricultural crop, this may mean using cultural methods, such as rotating between different crops, selecting pest-resistant varieties, and planting pest-free rootstock. These control methods can be very effective and cost-efficient and present little to no risk to people or the environment.

o Control: Once monitoring, identification, and action thresholds indicate that pest control

is required, and preventive methods are no longer effective or available, IPM programs then evaluate the proper control method both for effectiveness and risk. Effective, less risky pest controls are chosen first, including highly targeted chemicals, such as

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pheromones to disrupt pest mating, or mechanical control, such as trapping or weeding. If further monitoring, identifications and action thresholds indicate that less risky controls are not working, then additional pest control methods would be employed, such as targeted spraying of pesticides. Broadcast spraying of non-specific pesticides is a last resort.

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Annex 10: Project Preparation and Appraisal Team Members


NAME TITLE / FUNCTION

Financial and Private Sector Development Andres F. Garcia Task Team Leader, AFTFE Alwaleed F. Alatabani Senior Financial Sector Development Specialist, AFTFE Dorothy Matanda Private Sector Development Specialist, AFTFE Environment/ Social Bedilu Amare Reta Environmental Specialist Yasmin Tayyab Senior Social Development Specialist Financial Management and Disbursements

Adenike Oyeyiola Senior Financial Management Specialist

Rajiv Sondhi Senior Finance Officer Procurement Prosper Nindorera Senior Procurement Specialist Legal Evarist F. Baimu Senior Counsel Team Support Yeshareg Dagne Team Assistant, HQ Lucy Paul Ofere Team Assistant, Juba

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Annex 11: Documents in Project Files

REPUBLIC OF SOUTH SUDAN: Private Sector Development Project 1. National Bureau of Statistics of South Sudan. 2011. Release of First GDP and GNI figures

for South Sudan.

2. Southern Sudan Centre for Census, Statistics and Evaluation. 2010. Key Indicators for Southern Sudan.

3. World Bank. 2011. Operationalizing the 2011 World Development Report: Conflict, Security, and Development.

4. World Bank. 2011. Sudan Financial Sector Review.

5. World Bank. 2011. World Development Report: Conflict, Security, and Development

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Annex 12: Statement of Loans and Credits


Project Amount (US$ ml)

Disbursed (US$ ml)

Closing Date

MDTF-SS Portfolio Juba Rapid Impact Emergency 36.3 33.7 6/30/2012 Core Fiduciary Systems Support 11.1 11.1 9/30/2012 Umbrella Program for Health System

102.0 87.4 6/30/2012

Education Rehabilitation 25.5 24.5 6/30/2012 Emergency Transport Infrastructure Development

91.6 85.5 6/30/2012

Private Sector Development 9.1 8.4 6/30/2012 Agriculture and Forestry Development

30.2 24.4 6/30/2012

HIV/AIDS 17.6 17.6 6/30/2012 Water and Sanitation 30.0 7.3 6/30/2012 Road Maintenance 40.0 39.9 6/30/2012 Gender 10.0 7.2 6/29/2012 DDR 40.0 40.0 12/31/2011 Rule of Law (Police and Prisons) 25.3 25.3 12/31/2011 Rural Water Supply and Sanitation 19.0 19.0 Closed Cap. Build, Institutions & HR Development

12.2 12.2 Closed

Livestock and Fisheries Development

13.5 13.5 Closed

Census 13.7 13.7 Closed Currency 15.0 15.0 Closed Total 541.0 485.0 Non MDTF-SS Grants Under Implementation Emergency Food Crisis Response 7.2 6.8 12/30/ 2012 GAC Initiative for Development 0.5 0.3 10/30/2012 Private Sector Development 1.1 1.0 Closed Public Financial Management 3.5 2.2 Closed Total 12.3 10.3