The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) Concept Environmental and Social Review Summary Concept Stage ( ESRS Concept Stage) Public Disclosure Date Prepared/Updated: 03/04/2021 | Report No: ESRSC01892 Sep 28, 2023 Page 1 of 8 The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) I. BASIC INFORMATION A. Basic Operation Data Operation ID Product Operation Acronym Approval Fiscal Year P176434 Investment Project Financing (IPF) Somalia Kalkaal Project 2024 Operation Name Somalia Enabling Financial Inclusion for the Poor (“Kalkaal”) Project Country/Region Code Beneficiary country/countries Region Practice Area (Lead) (borrower, recipient) Somalia Somalia EASTERN AND Finance, Competitiveness SOUTHERN AFRICA and Innovation Borrower(s) Implementing Agency(ies) Estimated Appraisal Date Estimated Board Date Ministry of Finance Central Bank of Somalia 08-Nov-2023 28-Feb-2024 Estimated Concept Total Project Cost Review Date Public Disclosure 19-Dec-2019 71,997,689.00 Proposed Development Objective To ease everyday transactions and contribute to financial inclusion of the low-income groups by issuing new, legal, low denomination national currency notes and replace the old and counterfeit notes in circulation. B. Is the operation being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No C. Summary Description of Proposed Project Activities The scope of the currency exchange project is envisaged as a combination of traditional exchange of banknotes with several legal, regulatory, and institutional reforms to ensure the sustainability of the currency operation. The project is appraised at US$71.8 million Support will be provided toward the implementation of four components: (a) designing and printing of new banknotes; (b) currency exchange implementation; (c) CBS capacity building; and (d) project management. Component 1 – Designing and printing of new banknotes: This component will finance the design and printing of banknotes in four denominations and transporting them to Somalia to replace the old and counterfeit currency in circulation (CIC). Component 2 – Currency exchange implementation: This component will finance the cost Sep 28, 2023 Page 2 of 8 The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) of developing and implementing logistics, exchange and communication activities. Component 3 – CBS capacity building: The project will finance TA to the CBS to ensure adequate implementation capacity and sustainability of the project. Component 4: Project management: This component will fund the cost of project management, coordination, monitoring and auditing the integrity of the process and financial accounting and reporting of the currency exchange implementation. D. Environmental and Social Overview D.1 Overview of Environmental and Social Project Settings The project will be implemented throughout the country. Contextwise, Somalia is a fragile country and one of the poorest in the world. Poverty levels are stubbornly high – poverty incidence is about 77 percent of the population, one of the highest in the Sub-Saharan African region, with about 43 percent of the population living in extreme poverty. Unemployment is widespread within Somalia’s women and youth (the population below the age of 30), which represents about 73 percent of the population. Somalia is vulnerable to various shocks including natural disasters, epidemics. the onset of the novel Coronavirus disease 2019 (COVID-19) in March 2020. A slowdown in economic activities, containment measures to prevent the spread of the pandemic in quarters two and three and falling exports of goods and services have contributed to economic contraction. The project will therefore be implemented in areas of fragility due to endemic poverty, acute drought and protracted conflict and insecurity which may make direct access to beneficiaries challenging. Component 1 (designing and printing of new banknotes) finances the design of denominations, ideally structured as part of the printing contract to the international printer. The printer is yet to be selected but with a limited pool of Public Disclosure reputable and experienced printers under consideration, it is expected that the selected printers will have adequate environmental and social risk mitigation measures in place to address key challenges related to resources efficiency, pollution and labor management. Component 2 (currency exchange implementation) will entail the exchange of the new currency with the old. To implement this will require well-designed and executed logistics, a wide distribution of exchange points, adequate storage capacity for new and old notes and equipment, intensive communication and public awareness campaign and personnel training. Capacity gaps within the CBS have been augmented to adequately support the successful implementation of these activities. Component 3 (CBS capacity building) and component 4 (project management, financial monitoring and evaluation) will support the much needed capacity support including on environmental and social impact mitigation and management. D.2 Overview of Borrower’s Institutional Capacity for Managing Environmental and Social Risks and Impacts The Central Bank of Somalia (CBS) is the implementing entity for this project. Strategic direction and guidance for the project will come from a national high-level Project Steering Committee (PSC) that will be chaired by the Prime Minister and will include a broad range of stakeholders including representatives of the Federal Member States (FMS). The PSC will be responsible for generating commitment and ownership among key stakeholders and ensuring national level coordination of interventions to achieve the intended objectives. In addition to the PSC, a Project Technical Committee (PCT) will be established comprising of deputy heads, or directors general of institutions presented int the PSC. The PTC will be responsible for providing technical guidance, technical project coordination, quality control, and resolving issues before escalating to the PSC. The Project Implementing Unit (PIU) domiciled within the CBS is responsible for the day-to- Sep 28, 2023 Page 3 of 8 The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) day management of the project including the identification, mitigation and management of environmental and social risks. CBS does have experience on Bank finance having been involved in the Somali Core Economic Institutions and Opportunities Project (SCORE, P152241), and Somalia Capacity Advancement, Livelihoods and Entrepreneurship, Through Digital Uplift (SCALED-UP) project (P168115). Nonetheless, they have no knowledge and experience on the new Environmental and Social Framework (ESF). The ESF standard places a high obligation on the client and will require having dedicated environmental and social staff to run the day-to-day activities of the project. Given the institutions low capacity and inexperience with the ESF, adequate staffing resources will be required to support the project preparation process, as well as the implementation and monitoring of the project. The Environmental Specialist of SCALED-UP Project together with external consultants have provided short term support to the Central Bank for the preparation of Currency Project. Once fully constituted, the PIU would consist of a full time social expert and a part time environmental specialist. A GBV advisor will be brought on a part time basis and as required. II. SCREENING OF POTENTIAL ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS A. Environmental and Social Risk Classification (ESRC) Substantial A.1 Environmental Risk Rating Moderate There may be some potential negative environmental impacts associated with the printing of new currency notes as well as the destruction of the old currency notes. As the mechanics for printing new notes and destructing old notes is Public Disclosure not yet specific, these impacts are not yet known. The environmental risk rating will be adjusted as this information is known A.2 Social Risk Rating Substantial Social risk rating is assessed as substantial and mainly relate to activities under ‘Component 2: Currency Exchange implementation’. These include (a) the exclusion of hard to serve persons including minorities, pastoralists, women and persons with disabilities who may be inadvertently left out of community engagement and communication campaign or unable to access the currency exchange points; (b) elite capture where shortfalls in the estimation of the new currency may lead to unintended hierarchization, with the poor, the vulnerable, and marginalized citizens being left with the old worthless notes leading to destitution; (c) the security risks and other occupational health and safety risks associated with delivering banknotes in remote / underserved locations without basic physical and community infrastructure; (d) GBV and sexual exploitation and abuse/harassment (SEA/H) exacerbated by the existing contextual risks for women and girls accessing exchange points, who may also be forced to reciprocate currency exchange with sexual favors; (e) risks to community safety associated with the influx of security personnel accompanying the bank notes to the distribution points and (f) systemic weakness associated with CBS’ limited institutional capacity to preventing and redress adverse social impacts of the project. Risks related to resettlement and land acquisition, child and forced labor and labor influx not anticipated given the low footprint of civil works limited renovation of a few vaults in Mogadishu and FMS branches. Similarly, risks of OHS, child or forced labor associated with the removal and incineration of the old notes are unanticipated as the CBS will supply hole punching machine to the vendors and custom made ovens for incinerating old notes. B. Relevance of Standards and Policies at Concept Stage Sep 28, 2023 Page 4 of 8 The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) B.1 Relevance of Environmental and Social Standards ESS1 - Assessment and Management of Environmental and Social Risks and Impacts Relevant ESS1 is relevant in the context of the selection of base materials and manufacturing method for the new currency. There will be potential negative environmental impact which occurs as a by-product of the production process. There are potential positive environmental impacts with shifting from a older manufacturing method for paper currency to a current method, as current methods have made significant gains in reducing effluents as well as using technology which prolongs the length of a bill in circulation. The project is expected to positively foster financial access for the poor including through enabling mobile money to transact in the proposed new Somali shilling, thus providing an efficient mechanism to expand access to basic transaction accounts for those who are currently unable to transact in U.S. dollars. Considering Somalia’s complex operational environment potential exclusion of hard to serve community members (such as minorities, people with disabilities or widows, IDPs and pastoralists) remain. There is also risk of social conflict, harm or risks to human security and increased social tension in the community as it is likely that the banknotes (old and new) could be stolen, parallel distribution could take place and the new notes could be counterfeited. An assessment of the existing regulatory framework for the currency exchange will be conducted before appraisal. This will inform the development of measures to strengthen regulatory framework under which this exchange will take place as required. In addition, a Social Assessment (SA) will be developed, consulted and disclosed prior to appraisal. The SA will have a gender sensitive approach. To protect people from losses from the use of old notes, the CBS plans to covert 100% of the shillings and any margin of error will be estimated during appraisal and a strategy will then be devised to deal with it so that people do not lose their money. This will include counterfeit notes held by the people. No limits will be imposed on the exchange. Similarly, no fees will be charged by the MTBs. These Public Disclosure measures will be outlined in the SMP as appropriate. The project will also potentially have labor risks including OHS and GBV as significant number of personnel including armed security agents will be engaged for implementation. These risks will be mitigated through preparation and implementation of labor management procedures (LMP) and adoption of mitigation measures to be consolidated in a Social Management Plan (SMP) to guide the distribution components of the project. The SMP will include a GBV Action Plan aligned to GBV Good Practice and outlining GBV mitigation measures and measures to manage security risks. Specifically, the LMP and SMP will outline how the use of code of conducts, community sensitization and awareness raising, collaboration with local communities and GBV- related service providers, effective stakeholder engagement including inclusive and transparent consultation processes and the setting up of a functional project Grievance Redress Mechanism (GRM), will help protect the community and particularly more vulnerable populations (such as minorities, people with disabilities or widows, IDPs and pastoralists), and ensure their inclusion and full participation in project activities. ESS10 - Stakeholder Engagement and Information Disclosure Relevant The CBS will implement a series of information and awareness activities, which will include audio/print/visual media, SMS messaging, use of mosques, that will formally start with an official launch and will continue during the whole exchange period. The CBS will also establish a dedicated website, to educate the public during and after the introduction of the new banknotes. These plans/steps will be included in an SEP to be developed for the project before appraisal. Particular care will be taken to ensure that hard to serve communities such as the pastoralists, IDPs, women and the persons with disabilities are reached. The design and implementation of the operation will be done taking into account concerns and feedback of women, nomadic people, vulnerable groups, and other stakeholders. A project level GRM will be set-up to accord project affected persons an avenue to raise project related complaints and Sep 28, 2023 Page 5 of 8 The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) grievances. Key stakeholders include; members from the Minister of Finance, Minister of Interior and Federal Affairs, representatives from the Prime Minister’s Office and the Office of the President, Solicitor General and the Chair of the Parliamentary Budget Committee. Relevant ministries, institutions of government, FMSs, the security force, business communities, commercial banks, MTBs, targeted vulnerable groups, African Union Mission in Somalia (AMISOM) and police force/CID, NISA and the Attorney General’s office. ESS2 - Labor and Working Conditions Relevant The new Somali shillings will be produced overseas and shipped to Somalia. There are several globally renowned currency producers in Europe, the US and Russia that will likely bid for this contract. The finished notes will be shipped to Somalia once completed. The bidding process for the currency suppliers will include measures to protect againts child labor and forced labor. The currency exchange project will require a significant number of well-trained personnel to execute the plan. Many tasks will be performed during the currency exchange exercise by a combination of CBS staff and Police/NISA; all civil servants that will be covered under their existing terms of employement. As such, measures to ensure that their occipational health and safety and personal security is safeguarded will be spelled out in the LMP. External consultants, MTBS staff and other contracted workers that will be hired under the project will operate under the provisions of the relevant national law with any additional measures relating to code of conduct, use of child and forced labour, OHS and setting up of a labor specific GRM being detailed in the LMP. ESS3 - Resource Efficiency and Pollution Prevention and Management Relevant ESS3 applies to this project in relation to the entry and exit of paper money from circulation. Paper money creation Public Disclosure and printing is quite sophisticated and and involves using special high quality paper/polymers/inks etc. as well as steel plates to produce the notes. When a paper bill has been defaced, torn, or worn to the point where it is no longer identifiable or useable, it is taken out of circulation and can be shredded and recycled. The lifecycle of Somali currency will be further explored as part of the preparation for the bidding of the printing. ESS4 - Community Health and Safety Relevant The project is expected to work with law enforcement agencies, including the National Police Force, the NISA and or contracted security personnel. A social assessment and a SMP will assess the risks related to the use of the National Police, NISA, and/or contracted security personnel and provide relevant mitigatory measures commensurate with the risks and impacts. Other risks to community health and safety such as increased crime and violence, security risks while travelling to and from MTBs will be similarly assessed through a Social Assessment and mitigatory measures outlined in a Security Management Plan that will be included in the Social Management Plan (SMP). ESS5 - Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not Currently Relevant This ESS is not relevant for this project intervention. ESS6 - Biodiversity Conservation and Sustainable Management of Living Natural Not Currently Relevant Resources This ESS is not relevant for this project intervention. Sep 28, 2023 Page 6 of 8 The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) ESS7 - Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Not Currently Relevant Local Communities This ESS is not relevant for this project intervention. ESS8 - Cultural Heritage Not Currently Relevant This ESS is not relevant for this project intervention. ESS9 - Financial Intermediaries Not Currently Relevant This ESS is not relevant for this project intervention. B.2 Legal Operational Policies that Apply OP 7.50 Operations on International Waterways No OP 7.60 Operations in Disputed Areas No B.3 Other Salient Features Use of Borrower Framework The borrower framework is not being considered for use in this project. Public Disclosure Use of Common Approach No N/A C. Overview of Required Environmental and Social Risk Management Activities C.1 What Borrower environmental and social analyses, instruments, plans and/or frameworks are planned or required by Appraisal? III. CONTACT POINT World Bank Task Team Leader: Neema Mwingu Title: Senior Financial Sector Specialist Email: nmwingu@worldbank.org TTL Contact: Asta Bareisaite Job Title: Senior Private Sector Specialist Sep 28, 2023 Page 7 of 8 The World Bank Somalia Enabling Financial Inclusion For The Poor (“kalkaal”) Project (P176434) Email: abareisaite@worldbank.org IV. FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects V. APPROVAL Task Team Leader(s): Neema Mwingu, Asta Bareisaite Practice Manager (ENR/Social) Helene Monika Carlsson Rex Recommended on 04-Mar-2021 at 10:05:22 EST ADM Environmental Specialist: Haroub Ahmed Haroub ADM Social Specialist: Raymond Simon Maina Kirwa Public Disclosure Sep 28, 2023 Page 8 of 8