ICRR 14941 Report Number : ICRR14941 IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 06/30/2016 Country : Madagascar Project ID : P083351 Appraisal Actual Project Name : Integrated Growth US$M): Project Costs (US$ 304.0 443.8 Poles L/C Number : Loan /Credit (US$ Loan/ US$M): 129.8 166.0 Sector Board : Urban Development US$ Cofinancing (US $M): 174.2 277.8 Cofinanciers : Board Approval Date : 07/12/2005 Closing Date : 12/31/2010 12/31/2014 Sector (s): Other industry (25%); General public administration sector (25%); General transportation sector (20%); General industry and trade sector (20%); General energy sector (10%) Theme (s): Infrastructure services for private sector development (40%); Micro; Small and Medium Enterprise support (40%); Other urban development (20%) Prepared by : Reviewed by : ICR Review Group : Coordinator : Nestor Ntungwanayo George T. K. Pitman Christopher David IEGPS1 Nelson 2. Project Objectives and Components: a. Objectives: The objectives of the project according to the Development Credit Agreement (p. 29) and the Project Appraisal Document (PAD, p. 9) are identical: “to assist the Borrower to provide a business environment adequate to stimulate and lead economic growth in three regional poles in the areas of Antananarivo -Antsirabe , Nosy Be and Taolagnaro , and in particular to : (i ( i) construct and rehabilitate critical infrastructure essential for sustained economic activity in the tourism , manufacturing , agribusiness and mining sectors ; (ii) ii) put in place appropriate incentive measures to achieve iii ) develop the instruments to ensure equitable , sustainable growth ; and (iv) rapid growth ; (iii) iv ) strengthen the capacity of local authorities to formulate , prepare , implement , and manage medium - and long -term integrated regional development projects in the future ." The project objective according to the November 2012 Restructuring Document Paper (p. 2) is: "to increase business and formal job creation in particular in the mining , tourism and agribusiness sectors in the Nosy Be and Taolagnaro regions " Due to change in the development objectives and outcome indicators during the 2012 Level-1 restructuring, a split assessment of achievements and outcomes is undertaken . b.Were the project objectives/key associated outcome targets revised during implementation? Yes If yes, did the Board approve the revised objectives /key associated outcome targets ? No c. Components: The project had five components and these were officially modified four time between 2007 and 2012. At the occasion of a Level-2 restructuring in 2007, component resources were reallocated to factor in shortfalls in counterpart funds and a change in the project implementation framework . In 2012, a Level-! restructuring took place to reflect the change in the development objectives , the dropping of the second component and its sub -components, and the addition, revision and dropping of sub -components to take account of the post -crisis country realities. A: Strengthening the business environment (estimate at appraisal US$54.7 million; cost at completion was US$40.8 million). . This component aimed to support Micro , Small and Medium-sized Enterprises (MSMEs) across the three poles through increased access to finance opportunities , capacity building, and targeted improvements to the business and regulatory environment. It was therefore the umbrella component for “soft” infrastructure delivery to promote higher private sector investment and job creation . Sub-components undertaken in coordination with the International Finance Corporation (IFC) included: 1. improving MSMEs' access to finance through a joint IDA -IFC risk sharing facility to provide credit guarantees to commercial banks ; 2. MSME capacity building to develop value chains ; 3. tourism capacity building; 4. supporting the restructuring of the state -owned water and electricity company JIRAMA ; and 5. supporting regulatory and policy reforms and investment promotion agencies . The 2007 restructuring added : 1. the expansion of training to include provision of business development services (BDS), 2. the expansion of Technical Assistance (TA) to include provision of goods ; 3. the recipient of TA changed from National Institute for Hotel and Tourism Training (NIHTT) to the Ministry of Tourism and Transport and Ministry of Education , and 4. Funding to support investment promotion agencies directed exclusively to newly -created Economic Development Board of Madagascar (EDBM). At the time of the 2012 restructuring : 1. the access to finance sub -component and the support for reserve lands (RFTs) were dropped; and 2. support for developing agribusiness value chains , and for analytical work on air access , was added. B: Export led growth in Antananarivo -Antsirabe (estimate at appraisal US$7.5 million; actual cost US$3.8 million) This component aimed to develop off -site investments for the creation of an Information and Communication Technology (ICT) business park in Antananarivo and to provide technical assistance for industrial and agribusiness zones in Antananarivo and Antsirabe . The main activities included: 1. technical assistance to relevant ministries and Export Processing Zone (EPZ) authorities to develop a new regulatory framework, one or more industrial parks in Antananarivo and Antsirabe , and a skills development program(s) and on the issue of trade negotiations ; 2. supporting the development of an ICT Business park in Antanetibe ; and (iii) supporting the municipalities of Antananarivo and Antsirabe through technical assistance , training, and rehabilitation of existing facilities At the 2007 restructuring there were three changes : 1. the development of industrial zones was defined explicitly to use of public -private partnerships, and 2. support for Antananarivo was dropped ; and 3. support for the Vakinankaratra region was added . At the 2012 restructuring : 1. Support for export-led growth in Antananarivo-Antsirabe and its three sub-components were entirely dropped. C: Tourism led growth in Nosy Be (estimate at appraisal US$54.8 million; actual cost was US$74.8 million). The goal of this component was to help build an infrastructure platform and regulatory environment conducive to the rapid growth of the tourism industry in Nosy Be , with a target of accommodating a demand of 2,000 international-level hotel rooms by 2010. Core activities under this component included : 1. the design and adoption of Nosy Be tourism and urban development master plans ,(ii) the upgrading the road network to enable access to the isolated eastern part of the island and improve travel conditions between the airport, the main city (Hellville) and tourism sites; 2. the upgrading of the Hellville and Ankify ports ; 3. the upgrading of the public utilities system by : (a) supporting power generation and distribution , (b) upgrading the water and sewerage system , (b) upgrading urban solid and (c) liquid waste management, and (d) upgrading telecommunications; 4. the upgrading of urban infrastructure in Hellville and adding a surgery block to its hospital ; and 5. the provision of support to the Nosy Be municipality and local tourism authorities through TA , training, rehabilitation of existing facilities and creation of ecotourism facilities . At the 2007 restructuring the following changes were made : 1. the upgrading of the electricity system was broadened to include support for renewable energy ; 2. the provisions of works for telecommunication network was dropped and support limited to TA only ; 3. the hospital upgrading was expanded to include support for malaria eradication program ; and 4. the support expanded to the broader Diana region . At the time of the 2012 restructuring there were three changes : 1. an addition to support the Centre de Gestion Agréé (CGA) and private business associations ; 2. scaling-back the comprehensive upgrading of ports to rehabilitation and modest expansion : and 3. the telecommunications network and the hospital upgrading were dropped . D: Mining and Tourism led growth in Taolagnaro (estimate at appraisal US$166.2 million; actual cost US$300.9 million). The activities under this component were designed to deliver the infrastructure and business environment needed to open up the economically-isolated Taolagnaro to new opportunities for tourism and agribusiness , as well as to catalyze and complement Rio Tinto’s parallel investments in ilmenite mining . The principal sub-components aimed to support the following activities : 1. development of tourism and urban development plan master plans ; (ii) construction (under a PPP with Rio Tinto) of a new public port on the Ehoala peninsula to support the ilmenite mining operations and facilitate local market access; (iii) a partial rehabilitation of the existing port of Taolagnaro to provide continuity for traffic during construction of the new port ; (iv) upgrading the access road network and the main rural roads ; 2. upgrading the key public utilities services (power, water, sanitation, urban infrastructure; and services and solid waste management, and telecommunications; 3. upgrading of selected urban infrastructures including the Tsiranana hospital ; and 4. supporting the municipality of Taolagnaro and local tourism authorities through TA , training, rehabilitation of existing facilities, and construction of basic sanitary facilities . At the 2007 restructuring three changes were made : 1. support for rehabilitation of old port was dropped ; 2. provisions of works under the telecommunications network was dropped and support limited to TA only ; and 3. support to Fort Dauphin was expanded to the broader Anosy region . At the time of the 2012 restructuring : There were three additions: 1. TA for development of Ehoala Park (adjacent to Ehoala Port): 2. support to the Centre de Gestion Agréé (CGA), Centred’Affaire Régional d’Anosy (CARA) and private business associations; and 3. support for environmental protection activities including coastal erosion mitigation and deforestation . Two activities were dropped: 1. telecommunications network upgrading and ; 2. upgrading of roads to select tourism sites E: Program and project implementation , evaluation and monitoring (estimate at appraisal US$21.1 million; actual cost US$23.5 million). This component was designated to establish the Project implementation Unit (PIU) and support, at both the central and regional levels: 1. project implementation, coordination, procurement and financial management ; 2. the preparation and implementation of the provisions of the Environmental Management Plan ; and 3. the carrying out of all environmental and social activities under the project . At the time of the 2007 restructuring : 1. support under TA, training, and goods and works for fiduciary and M &E activities was expanded to include communications activities. At the time of the 2012 restructuring there w as one addition and one amendment : 1. firm-level survey for employment and enterprise growth impact assessments was added ; and 2. support for regional development plans and environmental and social activities was amended to explicitly include protection and development of environmental assets such as Nosy Tanikely , Lake Amparihibe, Mont Passot and Lokobe National Park . d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project cost : The total actual cost amounted to US $443.8 million, reflecting an increase of 46% in comparison to the appraised amount of US$304.0 million. The largest change was an increase of US $132 million spent on infrastructure upgrading in Fort Dauphin and most of this was provided by the private sector . Other reallocations included (i) about US$20 million extra spent on infrastructure upgrading including social and sanitary infrastructure at Nosy Be, (ii) US$13 million cut from improving access to finance and almost US $3 million by reducing TA, and (iii) management and operating costs increased by about US $2.4 million. The Region subsequently informed IEG that most of the activities under this last component were wrongly booked and should have been put under the standard regional growth poles components . Financing : At approval IDA was the only financing agency although the PAD (page 14) indicates that Agence Francaise de Developpment, the African Development Bank, the European Investment Bank and the private sector would consider some form of financing . The original IDA Credit of US$120.78 million equivalent disbursed US$116.09 million and US$4.70 million was cancelled in 2012. The Additional Financing IDA Credit of US $35.15 million equivalent disbursed US$34.79 million and US$0.36 million was cancelled. The International Finance Center disbursed US$7.7 million, and the private sector provided US $267.80 million. Borrower contribution and Cofinancing : While the Financing Plan in the PAD had no cofinancing expected from the Borrower, the Annex 5-Table C on page 69 indicated that the Government's financial contribution would amount to US$39 million, or 13% of the financial resources. But in the end, a marginal amount of US$0.4 million was paid to reimburse the PPF only. Dates : The project was approved on July 12, 2005 and become effective on September 28, 2005. The project was restructured four times: 1. Level 2 restructuring on December 13, 2007 aimed to reallocate component funds to accommodate shortfalls in Government's counterpart funding and a change in the institutional framework for implementation; this restructuring was followed by an additional funding of US $35.15 million in 2008, 2. Level 2 restructuring on September 29, 2010 extended the closing date from December 2010 to December 2011 to allow for implementation to catch-up following the suspension of the project under OP /BP 7.30, 3. Level 2 restructuring on December 09, 2011 extended the closing date to October 2012 to disburse remaining funds under the original credit , and finally 4. Level 1 restructuring on December 04, 2012 made the following changes: (a) amended the Project Development Objective; (b) revised the closing date of the Project ; (c) dropped one growth pole; (d) revised some project sub-components and associated results indicators ; and (e) reallocated funds. 3. Relevance of Objectives & Design: a. Relevance of Objectives: Original Objectives : Substantial The objectives of the original project were overall substantially relevant , as the project's thrust was consistent with the country's priorities, and the Bank's strategy for Madagascar. However, the objective statement stressed project activities to be implemented in three locations of the country , while specific objectives were a mix of activities aiming to generate outputs and intermediate outcomes contributing to the achievement of the desired outcomes . The new Government coming into power after the 2002 crisis was committed to exploring new approaches that could both leverage country’s potential in specific sectors and address the growing regional disparities . The Government identified the three regions of Antananarivo -Antsirabe, Taolagnaro, and Nosy Be, where appropriate market conditions could be created to catalyze private sector growth in the tourism , mining and manufacturing sectors . The project was in line with the country 's 2004 Poverty Reduction Strategy Paper (PRSP), which aimed to cut poverty in half in ten years by: (i) improving governance; (ii) promoting broad-based growth; and (iii) providing security financing. The project supported the country 's strategy and the 2003 Bank’s Country Assistance Strategy (CAS)y, whose overarching goal was to foster growth through a focus on export processing zones (Antananarivo-Antsirabe), the tourism and agribusiness sectors (Nosy Be and Taolagnaro), and the mining sector (Taolagnaro). The CAS intended to pursue reforms in the telecommunications , power, and transport sectors, and to progressively tackle constraints in human capital formation, governance, the business environment, institutional capacity and enterprise development . Restructured Project Objectives : Substantial The objectives of the restructured project were substantially relevant , as the project's thrust remained consistent with the country's priorities, and the Bank's strategy for Madagascar until its closure . The revision narrowed the geographic scope of the objective and its focus to business and formal job creation for three (mining, tourism, and agribusiness sectors) instead of four sectors. While the thrust of the project remained almost the same , the project scope was reduced by the elimination of the Antananarivo-Antsirabe pole, and the manufacturing sector . The revised project remained relevant until closure as the first pillar of the 2007-11 Bank's CAS aimed to remove the bottlenecks to investment and growth in rural and urban areas b. Relevance of Design: Original Project : Modest The compound objective made it very unclear what the priorities were , and included intermediate outcomes and the means to achieve them. A more logical arrangement going from the macro -perspective to the micro-perspective and linking sub-objectives and activities described in the PAD is as follows : A. Develop the instruments to ensure equitable , sustainable growth : Develop policies and procedures for the leasing and factoring industry and build its capacity for management , planning and marketing through TA . Support development of a Lease Registry . Support the monitoring of institutional reforms in micro , SMEs to increase private sector investment . Promote investments in Micro- and Small and Medium-sized Enterprises (M and SMEs) and their registration. Build capacity of the government’s central tourism authority , its regional offices, and links to municipalities. Support regional development and local land use plans , and urban development plans . B. Put in place appropriate incentive measures to achieve rapid growth : Provide partial credit guarantees . Grants for micro-projects. Marketing support for M and SMEs. Provide training in tourism for M and SMEs. C. Strengthen the capacity of local authorities to formulate , prepare , implement , and manage medium - and long -term integrated regional development projects in the future . long- D. Construct and rehabilitate critical infrastructure essential for sustained economic activity in the tourism , manufacturing , agribusiness and mining sectors : Roads Ports, port facilities and their regulation and management as well as erosion protection . Water supply, sewerage and drainage Power supply including extending reliable electricity to tourism areas and hotels . Medical facilities. Telecommunications. Thus there was a clear, logical and fairly complete results chain that had the potential to deliver the desired outcomes. The key shortcomings were the lack of clarity in the statement of the overarching objective , and the lack of distinction between the activities and the project objectives . This lack of clarity in the design stemmed from and was exacerbated by the complexity of the project . Operationally, its major challenge was that the massive scope of activities in three diverse and widely distributed locations was ill -matched to the uneven government capacity to coordinate and implement the project , and a risk-averse private sector in a politically unstable country . The latter particularly so as the major investments in ports and hotels , and their attendant supportive infrastructure , required significant external private financing that does not always welcome the Bank’s oversight on safeguard issues . There was also the difficulty of phasing ; infrastructure can be rehabilitated or built relatively quickly whilst capacity -building and new institutions take many years to mature . The design of the results framework was initially tentative . However, during implementation, the results framework was revamped following improved precision and realism in the expected outcomes , intermediate targets and baselines. Some outcomes were either dropped or revised , and relevant new ones introduced . Restructured Project : Substantial The complexity of the original results framework was simplified and the reduction in scope made it more manageable and realistic. After restructuring, the results framework was significantly revised and improved , and the restructured project design was substantially relevant . 4. Achievement of Objectives (Efficacy): (A) Original project : Substantial The overall purpose of the initial project is "to assist the Borrower to provide a business environment adequate to stimulate and lead economic growth in three regional poles in the areas of Antananarivo -Antsirabe, Nosy Be and Taolagnaro, and in particular to: (i) construct and rehabilitate critical infrastructure essential for sustained economic activity in the tourism, manufacturing, agribusiness and mining sectors ; (ii) put in place appropriate incentive measures to achieve rapid growth ; (iii) develop the instruments to ensure equitable , sustainable growth; and (iv) strengthen the capacity of local authorities to formulate , prepare, implement, and manage medium- and long-term integrated regional development projects in the future .” Outputs (i) Develop the instruments to ensure equitable and sustainable growth . The project aimed to create in Antananarivo -Antsirabe the conditions for for an export -led growth, through the creation of an agro-techno-pole, and ICT business park, and a skills development scheme . There were no tangible outputs, except the completion of feasibility studies . Training of managers in textile and garments industries , and postgraduate training in IT systems . Feasibility study completed on cold chain (refrigerated transportation). Completion of feasibility study for agro techno -pole in Antsirabe. Completion of feasibility studies for ICT Business park in Antanetibe . ii) Put in place appropriate incentive measures to achieve rapid growth (ii) . Two participating banks (BNI-Madagascar and BFV Societé General ) had granted 1206 loans to MSMEs totaling US$30.3 million. 240 bank staff trained in MSME lending & procedures. Subsidized Business Development services (BDS) provided to over 5,200 individuals/firms through TVET programs and privately-managed hotel training schools . Disbursement of $850,000 in grants, mostly in agricultural and tourism activities , mobilizing $1.36 million in co-investment by beneficiaries. The number of individual recipients of subsidized Business Development Services was exceeded to reach 5,252, against a target of 2,600. iii ) Strengthen the capacity of local authorities to formulate , prepare , implement , and manage medium - and (iii) long -term integrated regional development projects in the future . long- Regional development plans were adopted in 2006. The National Assembly adopted a new Investment Law and amended the Free Zone Law in 2006.Creation of Economic Development Board of Madagascar . Tourism and urban master plans completed . TA for urban and regional economic planning , M&E, and land management; establishment of Centre de Gestion Agréé (CGA). 166 staff trained and provided with new software and equipment in Nosey Be . 231 staff trained and new software and equipment provided in Tolagnaro for various municipality functions : land tenure, construction permit issuance , general administration and revenue management iv ) Construct and rehabilitate critical infrastructure essential for sustained economic activity in the tourism (iv) , manufacturing , agribusiness and mining sector . Tourism -led growth in Nosy Be Construction of 2 new reservoirs and rehabilitation of pump stations and treatment facilities . 80 standpipes constructed and 86 rehabilitated. 1,177 new household water connections . New waste management entity (EGEDEN) established, covering 7 fokontany. New landfill site constructed and equipment for collection provided . Targeted outcomes included infrastructure upgrading , social and sanitary infrastructure , and support to the Nosy Be municipality, in order to attract private investment , construction of hotels, and increased capacity for the municipality to ensure adequate oversight of the region . The targets of 14.6 km and 44.8 km for rehabilitated roads in the urban and rural areas were exceeded to reach 15.0 km and 44.8 km respectively. Upgrading works of Hellville and Ankify ports were completed , with strengthening and extension of port berths to increase handling capacity for cargo and tourist cruise ships , The target for additional generation capacity installed of 7.6 MW was exceeded to reach 9.0 MW. The achieved constructed electricity network was 29.72, against a target of 46 km, while the rehabilitated electricity network exceeded the target of 27 km to reach 69 km. Conservation of Mont Passot and Nosy Tanikely , two tourists sites generating respectively 12,000 and 22,000 visitors per year. Mining and Tourism led growth in Fort Dauphin 500 new household water connections 115 standpipes constructed and 34 rehabilitated New landfill site constructed at Ankarefo Rehabilitation of hospital building, including surgery block Targeted outcomes included infrastructure upgrading , social and sanitary infrastructure , and support to the Fort Dauphin municipality, in order to attract private investment , and increased capacity for the municipality to ensure adequate oversight of the region . The targets of 30.8 km and 92 km for rehabilitated roads in the urban and rural areas were exceeded to reach 31.1 km and 92.5 km respectively. The target for additional generation capacity installed of 23.7 MW was achieved. The achieved constructed electricity network was 13.8, against a target of 12 km, while the rehabilitated electricity network exceeded the target of 87 km to reach 138 km. The volume of traffic handled by Ehoala Port reached 461,000 tonnes, short of the target set at 750,000 tonnes in 2014. Multi-use port with three wharfs and two warehouses to facilitate ilmenite exports , cargo handling (including sisal, lychee, fish and lobsters), and attend cruise ship arrivals carrying passengers . Outcomes : The number of days required to start a business was decreased from 8 to 3 in the Capital, and the number of 7 days in the regions was unchanged . The number of tourist arrivals by air or sea in Nosey Be per annum totaled 64,502, short of the target level of 80,000 by 2010. The number of tourism arrivals in Taolagnaro per annum was exceeded to reach 33,330 against a target of 31,000 by 2010 Increase in volume of merchandise shipped through the Taolagnaro port up to (i) 2.3 million tons of ilmenite exported since 2009, and 185,000 tons of other cargo (including sisal, lychee, fish and lobsters), and (ii) 31 ne w cruise ship arrivals carrying over 28,000 passengers. The number of formal jobs created in the two poles of Nosy Be and Fort Dauphin totaled 16,333 against a target of 13,900 set at restructuring. Crop production across 7 communes was boosted by 2,075 tons as a result of contract farming scheme run in partnership with CARE International. Toward the overarching objective , there was good progress in private investment, business and job creation . Private investment : In Fort Dauphin, the bulk of investment came from the project partnership with QIT Madagascar Minerals (QMM), which brought in around $900 million of private capital for the Ehoala Port and the mining facility, and $4 million for water and electricity supply infrastructure . In Nosy Be, around 130 new hotels were built during the project period and many others upgraded . The share of hotels with a 3- and 4-star rating rose and the number of sizeable new privately -owned recreation facilities and tourist parks were also opened . Across these two regional poles , the PARC grant scheme mobilized around $1.8 million co-investment by private beneficiaries across a range of sectors . Private investment investments related to Antananarivo-Antsirabe pole were never realized due to the political crisis . Regarding attribution, infrastructure funded by the project was key to facilitating and attracting private investment both in Nosy Be , and Fort Dauphin poles. This was not the case for private investment that was launched thereafter in the Antananarivo -Antsirabe pole. Business creation : Formal business creation in the three poles exceeded the targets , and in Nosy Be and Fort Dauphin poles, new firms reached the level of 5,471, to which to add an unknown number of firms created in the Antananarivo- Antsirabe pole. Key caveats are that (i) the figures measure gross business creation , (ii) attribution is not only to the Growth Pole Project , and (iii) informal firm creation is not captured . Job creation : Outcome indicators on job creation in the three regional poles fell below original targets . The number of formal jobs created in the two poles of Nosy Be and Fort Dauphin totaled 16,333, to which are added an unknown, but limited number of jobs created in the Antananarivo -Antsirabe pole. The same caveats are that (i) the figures measure gross job creation , (ii) attribution is not only to the Growth Pole Project , and (iii) informal job creation is not captured . In Nosy Be and Fort Dauphin, the project's impacts on job creation are traceable on both the supply and demand side , to factor in the upstream hiring by new firms , and the downstream hiring by the firms in the supply chain. However, job creation in the Antananarivo -Antsirabe pole is hard to relate to the project performance. (B) Restructured Project : High The revised project development objective is " to increase business and formal job creation in particular in the mining, tourism and agribusiness sectors in the Nosy Be and Taolagnaro regions " Outputs These are the same as the original project . Outcomes The number of formal jobs created in the two poles of Nosy Be and Fort Dauphin totaled 16,333 against a target of 13,900 set at restructuring. Direct project beneficiaries were estimated to 220,199 against a target of 217,300, of which 50.6% of whom were female. The number of businesses registered in the two poles in Nosy Be and Fort Dauphin exceeded the target of 3,500 units to reach the level of 5,471. Tourism -led growth in Nosy Be The number of tourist arrivals by air or sea per annum totaled 64,502, short of the target level of 76,000. The number of formal and direct tourism related jobs exceeded the target of 3,500 to reach the number of 3,701. The cumulative increase in hotel rooms exceeded the target of 105 percent to reach 128 percent. The target of 65,800 for the number of people provided with access to “Improved Water Sources” under the project was exceeded to reach the number of 68,520, and the target for people in urban areas in Nosy Be provided with access to regular solid waste collection under the project was exceeded to reach 75,573, against a target of 70,700. The time required to issue a construction permit by the municipality of Nosy Be fell dramatically to 7 days (target was 30 days). The increase of additional municipal revenue generated exceeded the target of 125 percent to reach 132.2 percent. Mining and Tourism led growth in Tolagnaro The number of tourism arrivals per annum was exceeded to reach 33,330 against a target of 30,000. The number of formal and direct tourism related jobs reached 1,880, short of the target of 2,000. (iii) The cumulative increase in hotel rooms slightly exceeded the target of 100 percent to reach 103 percent. The time required to issue a construction permit by the Municipality of Taolagnaro was reduced significantly to only 17 days, exceeding the target of 30 days. The target for additional municipal revenue generated was slightly missed targets and reached 568 percent against a target of 575 percent. The number of people provided with access to “Improved Water Sources” under the project was exceeded to reach 64,830, against a target of 63,400 and the target for people in urban areas provided with access to regular solid waste collection under the project was exceeded to reach 68,033, against a target of 61,320 The number of formal jobs in mining, construction, agribusiness and in Ehoala Park /Port reached 3,849 in 2014, in excess to the target of 3,100. 5. Efficiency: Modest Economic and Financial Efficiency A comprehensive economic analysis was carried out at appraisal and was repeated at closure . Assumptions at the time of appraisal were updated using actual outcome data at the closing of the project in 2014, and projections for the post-project forecasts were adjusted accordingly . Because of insufficient private investor interest to launch both the ICT Business Park and agro techno -pole sub-projects, the Antananarivo-Antsirabe pole was abandoned and the bulk of the project 's planned interventions never materialized. The ex-post economic benefits of the pole were essentially zero , while a total of $6.7 million was invested in the pole resulting in an NPV of – $5.3 million and a negative economic rate of return of -5.4%, against a rate of 10.5% at appraisal. In Nosy Be, the cost-economic analysis at appraisal focused on project impacts on the tourism sector , but the ICR brought in the potential benefits to agriculture and fishing , but these were found to be quite small . The number of tourist arrivals to Nosy Be by 2014 has grown at a much lower rate than envisioned , reflecting both the dampening effect of the political crisis on tourism and the security concerns . The growth of hotel rooms on the island has also been more muted, falling slightly short of the projected level . The phasing out of tourist visa fees and the partial capture of eco-tourist entrance fees have further lowered the present value of expected benefits . In total, the present value of benefits in Nosy Be at the time of the ICR is estimated at $41.1 million, while the present value of project 's expenditures remains largely unchanged ($49.1 million compared to $45.2 million at appraisal) despite the $23.8 million of new investment added to the Nosy Be pole as part of the additional financing credit in 2008. In all, this brings the estimated economic rate of return of the Nosy Be pole ex post down to only 7.7 percent, against a rate of 17.9 percent at appraisal. In Fort Dauphin, the economic cost-benefit analysis at appraisal was organized around the three key sectors of tourism, agriculture, and mining. For tourism, expected benefits were in the form of additional rents captured through visa fees and hotel taxes , visitors’ local expenditures , excursion site entrance fees , and wages for local hotel workers. Tourist arrivals to Fort Dauphin fell short of the level assumed at the time of appraisal . Hotel capacity also expanded at a lower-than-projected rate. However, job creation in the sector exceeded projections , implying a multiplier as high as 7 tourism jobs per additional hotel room . As a result, the present value of expected wage rents jumped to US$14.2 million, nearly four times the amount estimated at the time of appraisal , but increased local salary rents could not offset declines in other rent categories , resulting in an estimated present value of tourism benefits ex post at US$23.5 million, around $5 million lower than the appraisal estimate . Incremental economic rents in the agriculture sector were expected from road improvements , the new Ehoala Port, and the additional demand for local food products by hotels and restaurants . Expected export growth in the three high-potential crops (sisal, periwinkle, and lychee) failed to materialize. While sisal exports have recovered , they have yet to surpass their average levels in the pre -project period. Production of local vegetables , legumes, and cereals has expanded as a result of increased local demand from Rio Tinto’s facilities and the restaurants and hotels servicing the increased tourism activity . Pink pepper production and crayfish exports have expanded since 2009. Overall, combined incremental rents from various agricultural products are estimated to be small . In the mining sector, economic rents were to be derived from : (i) the mining royalties and taxes paid by Rio Tinto to the local authorities and the central government ; (ii) the incremental increase in wages paid to local employees ; (iii) Rio Tinto’s local purchases for the construction and operation of the mining and facility and Ehoala Port ; and (iv) the spending on local products by its employees . Projections were not achieved , because of (i) unanticipated technical challenges in the mining process which raised the costs of production beyond what was initially expected (ii) ilmenite prices on global markets averaging averaged US $140 against a planned peak of US $225. As a result, combined revenues from ilmenite and zirsill through 2014 have fallen short of expectations : a cumulative US$354 million compared to $415 million projected at appraisal. Rio Tinto’s financial losses have directly translated into lower-than-expected fiscal contributions , while personal income tax collection from Rio Tinto workers and the local content of purchases during the construction of the mining facility and Ehoala Port were considerably higher-than-expected. These latter two sources of economic rent have helped offset the significant shortfall in tax payments. Overall, the present value of incremental mining rents at the time of the ICR is estimated at $30.6 million, compared to $38.3 million at appraisal. Aggregating across the three sectors , the total estimated benefits in Fort Dauphin from the project interventions amount to $69.5 million in present value terms. The shortfall relative to the PAD projection of $85.1 million is spreads across the three sectors , but stems predominantly from lower mining rents , and keeps its economic rate of return at 12.0 percent, below the 12.9 percent estimated at appraisal . Summing up the costs and benefits across the three regional poles , the overall ex post is estimated at 9.3 percent, compared to the 14.5 percent projected at appraisal and the more optimistic 20.2 percent estimated during the mid-term review in 2008. This outcome reflects the fact that two of the regional poles (Antananarivo-Antsirabe and Nosy Be) missed initial expectations, and only one (Fort Dauphin) delivered an ERR above the assumed 10 percent cost of capital. However, excluding the private sector costs and benefits from the calculation of the ERR was a methodological weakness as the key goal and the value added of a growth pole project is to trigger the development of profitable private businesses . Operational and Administrative Efficiency The ICR did not conduct an administrative efficiency analysis of the project to complement the economic analysis . Overall, administrative efficiency was poor due to multiple operations of restructuring , multiple changes in project components, and a long delay in the completion of the project . ERR )/Financial Rate of Return (FRR) a. If available , enter the Economic Rate of Return (ERR) FRR ) at appraisal and the re- re -estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 14.5% 70% ICR estimate Yes 9.3% 78% * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: Original Objectives : Relevance of objectives is rated substantial notwithstanding the complexity of the compound objective . Efficacy of the overriding objective to provide a business environment adequate to stimulate and lead economic growth in three regional poles in the areas of Antananarivo -Antsirabe, Nosy Be and Taolagnaro is rated substantial. Project efficiency is rated as modest . The outcome is rated as Moderately Satisfactory . Revised Objectives : The objectives of the restructured project were highly relevant , and the project design was substantially relevant . Efficacy was high because outcome targets were achieved or exceeded . Project efficiency is rated as modest . The outcome is rated as Moderately Satisfactory . Because the outcome of the original and restructured project are rated the same , the overall outcome is Moderately Satisfactory . a. Outcome Rating : Moderately Satisfactory 7. Rationale for Risk to Development Outcome Rating: Despite mitigation actions measures developed during the project implementation , there remain governance, political and legal risks that threaten the sustainability of achieved outcome . While the second phase of the project will take care of most of those risks and will promote sustainability of the gains , the following risks remain: Risk of political instability . Madagascar has a history of recurring political crisis . Tensions between the ruling and opposition parties remain elevated in the aftermath of the five -year political standoff and the risk of future flare-ups cannot be excluded . Political confrontation could halt and potentially reverse the tentative resumption in foreign investment, undermine government commitment to maintain the infrastructure and institutions supported by the closed project , and impede the execution of the second phase under way . Governance risks : The retention of human capital and administrative capacity will be central to maintaining achieved gains, because weakened municipal revenue collection , and deterioration in skills of new labor market entrants might put in jeopardy the management of infrastructure and facilities developed in the regional poles supported by the project. In particular, the chronic mismanagement of state -owned enterprises such as Air Madagascar and the water and electricity company (JIRAMA) continues to impede enabling reforms for the tourism sector and the provision of reliable and affordable public utilities to the population . Legal and regulatory barriers to growth of the tourism and export . The country’s rigid air access policy and the weak legal framework for punishing electricity theft are the most pressing constraint to the growth of tourism and for export activity more generally . Lack of progress in these sectors will undermine the goal pursued by the regional pole experience in the country . Social risks : An effective and transparent mechanism for distributing and managing royalty payments to the rural communes near its mining facility was never fully implemented . This has left many commune residents with resentment that they have not fairly benefited from the mining operations and the risk for these frustrations to escalate remains high. a. Risk to Development Outcome Rating : Significant 8. Assessment of Bank Performance: a. Quality at entry: The scope of appraisal was over -ambitious and there was inadequate consideration of the potential benefits from strategically sequencing project activities . Thus thorough appraisal of all 87 initial project sub-components was not feasible under the preparation timeline and was not performed , and the project could have benefited from greater simplicity and focus in the design . Despite the potentially large involvement of the private sector , appraisal did not considered adequately the synergy the International Finance Corporation could have brought to the project, particularly for the Partial Credit Guarantee Scheme . The Bank team conducted all required risks assessments , addressed any fiduciary concerns , and the project’s numerous social and environmental safeguards issues were researched and mitigating measures proposed . In particular, the team hedged the risk of delays in Ehoala Port investment by making project disbursements for this component conditional on the signing of the mining concession agreement between the private company and the Government of Madagascar. On the weaker end, there was not enough studies to better understand factors hindering firm growth and establish baselines to track progress . M&E arrangements were poor. Institutions responsible were not specified . Results indicators were not precisely formulated, and baseline values and arrangements for future data collection were missing . Mechanisms to capture private sector feedback about the impact of the project’s interventions were not properly set up and utilized. at -Entry Rating : Quality -at- Moderately Unsatisfactory b. Quality of supervision: The project benefited from the fact that the first Task Team Leader was based in the country 's office for most of the time, and this enabled close interaction between the World Bank team and the Project Implementation Unit (PIU). Aide memoires and internal reporting kept key stakeholders informed of the progress in project implementation, and delays or weaknesses in implementation were addressed through frequent restructuring and adjustments. The Bank team made an accurate diagnostics of changing national and local priorities , and took initiative to prepare additional financing credit to compensate for funding shortfalls and adjust component activities. When disbursements were stopped following issues of legitimacy of institutions , the Bank team negotiated an exception to the policy to keep the project disbursing for safeguards -related activities. This helped maintain the core functions of the PIU , preserve continuity in implementation , and enable the project to resume disbursing promptly in 2011. Procurement missions and reviews were carried out as scheduled and their findings were reflected in the overall supervision reporting. The performance of the environmental safeguards aspects was documented in the Aide Memoires, and adjusted the supervision ratings to reflect compliance performance . Because of the weak quality of M &E at design, the supervision team included an M &E expert to support the PIU in improving outcome indicators and the quality of source data . This M&E support was instrumental in reformul ating key results indicators and their targets as part of project’s level one restructuring in 2012. Project supervision took too long to come up with adequate M &E arrangements, and because of this, the quality of supervision is rated as Moderately satisfactory . Quality of Supervision Rating : Moderately Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9. Assessment of Borrower Performance: a. Government Performance: The Government of Madagascar showed commitment in project preparation and supported the (PIU) to settle all implementation issues. The Steering Committee effectively facilitated coordination between key line Ministries , local authorities and private sector representatives in key strategic decisions . During the 2009-2014 crisis period, when responsibility for high-level oversight shifted to regional development committees , ownership was even strengthened due to the greater proximity to daily implementation . Despite a strong Government's commitment to the overall strategic vision and development objectives of the project, central and local authorities struggled in adhering to the scope of activities laid out in the project agreement. The project visibility in the regional poles tempted Government officials to use it as a political tool , promising interventions that were beyond what was agreed at the time of project approval . The frequent reshuffling of local officials throughout the project life reinforced this tendency . In certain instances, the Government fell short of what was necessary to maximize project effectiveness . It resisted implementation of the Open Skies Policy after having adopted it as one of the project’s legal covenants , and was late in adopting an autonomous management framework for regional offices of the state -owned water and electricity company. Finally, the Government was unable to deliver on its agreed financial contribution to the project on account of budget difficulties and reallocation of expenditures to other national priorities . This financing shortfall was a key reason for the 2008 restructuring and the provision of additional financing . Government Performance Rating Moderately Unsatisfactory b. Implementing Agency Performance: The PIU and the regional pole directors remained in their positions for the full 9 years of the project. The challenges they faced were very significant . In total, there were 3 different Presidents, 6 Ministers of Finance, 5 Chiefs of Region, and 8 Mayors over the implementation period . In the regional poles, the frequent reshuffling of officials, each coming into office with a different set of campaign promises , complicated Bank and PIU efforts to manage public expectations and keep implementation focused on previously -agreed priorities. It also led to high turnover in municipal staff, undermining the administrative capacity that the project was helping to build . When half of the technical and administrative staff was laid off during the crisis period due to budget cuts , many kept their position to show their long-term commitment and their determination to see the project through to the end . Thus, when the Bank could not have a formal relationship with the central government , the PIU maintained project engagement at the local level . The PIU established a sustained dialogue with project stakeholders and pro-actively leveraged local institutions and communities to support project implementation . It also ran various promotional campaigns to raise awareness of the project and encouraged potential beneficiaries to take advantage of the project’s training programs and other services . Financial reports were generally submitted on time and in accordance with Bank standards . Compliance with environmental and social safeguards was also assured through dedicated regional staff . The key shortcoming relates to the lack of M &E experience and capacity in the early stages of the project , until the hiring of a local expert in 2011. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Moderately Satisfactory 10. M&E Design, Implementation, & Utilization: a. M&E Design: The initial M&E framework for the project was weak . Key outcome indicators were not precisely specified and were subject to various external influences , and the causality chain was difficult to establish . Second, baselines and targets for many indicators were not established at the time of appraisal , and the timeframe for data collection and the institutions responsible were not specified . Finally, although the systems for monitoring social and environmental impacts were strong, feedback mechanisms for assessing the economic impact of project interventions on the private sector were not institutionalized . b. M&E Implementation: It took over two years to develop baselines and collection systems for many outcome indicators . For Fort Dauphin, the implementation team was able to leverage the significant resources of the mining company to gather key data on jobs and mining and port activity . The establishment of the Economic Development Board of Madagascar also provided a new institutional structure for monitoring business creation in the regional poles , although not necessarily for evaluating the subsequent performance of these registered firms . The results framework was revised at the time of the first project restructuring in 2007, although attribution for certain indicators remained weak. A mid-term review was conducted in 2008, and it contributed to advance the M &E work and to make project adjustments , based on the field developments . It was during the third project restructuring in 2012 that the development objective was formally revised to allow for a clearer and more direct mapping of project objectives to measured outcomes . c. M&E Utilization: Outputs across components were carefully tracked , delays and complications addressed in a timely manner , and adjustments made based on the results of ongoing feasibility studies and evolving national and local priorities . Social and environmental impacts were also regularly assessed and remedial actions taken , drawing on the expertise and recommendations of the various Independent Advisory Panel reports . With respect to assessing economic outcomes , however, the project was relying primarily on anecdotal evidence during the first few years of implementation , which limited the ability to conduct a proper impact evaluation and re-allocate project resources accordingly . The Bank commissioned an ex-post impact evaluation of the project in 2014 but the evaluation report came too late in project cycle to have any bearing on implementation or resource allocation decisions. M&E Quality Rating : Modest 11. Other Issues a. Safeguards: The project was classified as a category “A” project under OP /BP 4.01 Environmental Assessment. Regular internal safeguard reviews, and periodic inspections by an independent and an external Advisory Panel was recommended . The Borrower’s consultants prepared an Environmental and Social Impact Management Framework (ESMF), which guided the screening, analysis, and safeguards approval of sub -projects defined afterwards The ESMF also presented the guidelines and terms of reference for environment -based regional planning to be applied in the growth poles. The World Bank safeguards team carried out a comprehensive Social Impact Audit for the Project mid -term review in January 2008 and responded to its findings and recommendations accordingly . An Independent Advisory Panel produced three comprehensive reports during the course of project implementation , and helped the Bank team keep a pulse on local impacts and social safeguards issues and implement needed corrections . In Fort Dauphin, the income and livelihood restoration program implemented in favor of the residents of the mining communes was marked by recurring disputes over the prices the company paid to buy their land and the employment policy at its mining facility. The grievance redress mechanisms set up by the World Bank helped to manage these disputes and prevent violent escalations . Some tensions linger and this requires ongoing monitoring and engagement with residents who still feel they were unfairly compensated . In Nosy Be, the implementation of the Resettlement Action Plans has been largely satisfactory and there are no major issues pending. Threats to the environmental degradation of prime ecotourism sites have been largely addressed through their preservation and dedicated site management . The safety issues related to recurrent flooding have been remedied through the construction of reinforced river banks . However, efforts to deal with socially adverse impacts of tourism, could still be enhanced. The ICR reports (page 14) that an independent audit of the project’s Resettlement Action Plan (RAP) was launched in 2014 to examine project compliance with OP 4.12 ( para 24) and BP 4.12 (para 16). The results of this audit were not known at the time of the IEG Review . b. Fiduciary Compliance: Financial Management . There were no major fiduciary management issues encountered during implementation . Project financial statements and audit reports were generally submitted on time and the final audit report was submitted to the Bank in May 2015. Audits were in compliance with Bank standards (ICR p. 15). Procurement . There were some difficulties in adhering to procurement plans in the early stages when the Government failed to deliver on its financial commitments to the project . There were revisions to the procurement plans to compensate for shortfalls relative to budgeted amounts . After the project was first restructured in late 2007 to provide 100 percent Bank financing to all eligible expenditure categories , there was not a budget-procurement reconciliation problem. c. Unintended Impacts (positive or negative): d. Other: 12. 12. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Moderately Moderately Satisfactory Satisfactory Risk to Development Moderate Significant Governance and political risks are still Outcome : high and might jeopardize achieved outcome Bank Performance : Satisfactory Moderately The project had shortcomings with Satisfactory regards to Design. It was overly complex, the results framework and the M&E arrangements were weak, and this handicapped the project 's performance. Borrower Performance : Moderately Moderately Satisfactory Satisfactory Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: The ICR identified a list of lessons , six of which are endorsed and rephrased below : multi -sectoral project needs to ensure that activities are undertaken in an integrated manner A complex , multi- . The project complexity arose mainly from its reliance on the private sector to provide key complementary infrastructure links. The project design and implementation had to remain flexible and adapt to potential delays in specific components , and to the private sector supply and demand . It has to allow for sub-components to be removed or amended without compromising the overall project framework . The balance between hard and soft infrastructure investments in regional growth poles has important political economy implications . The project interventions in both Nosy Be and Fort Dauphin were high in hard infrastructure content. This stands in contrast to the Antananarivo -Antsirabe pole, which was anchored exclusively in “soft infrastructure” investments , and struggled to retain support when essential complementary private investments failed to materialize . Some minimum threshold of hard infrastructure content could be considered as a means of helping growth poles gain political and social traction during the initial stages of implementation. Whether or not a growth pole is anchored around a single large investment or investor shapes its risk structure . The Fort Dauphin growth pole anchored around a single major investor , and the Nosy Be growth pole relied on a broader set of private sector stakeholders and greater risk sharing . The first model benefits from leveraging the resources of an established anchor investor but also exposes it to greater sustainability risk if this investor experiences hardships . In the second model, the broader distribution of activity among firms gives the private sector potentially more resilience , and also spreads out the burden of maintaining the shared infrastructure put in place by the project . This trade-off must be carefully considered in project design to determine which growth pole model is warranted for the specific circumstances . The private sector’s ability to leverage infrastructure platforms for growth can be undermined by incomplete supporting policy reforms . The chronic mismanagement of SOEs such as Air Madagascar and the state-owned water and electricity company (JIRAMA) continues to impede enabling reforms for the tourism sector and the provision of reliable and affordable public utilities to the population . These examples demonstrate that when infrastructure and regulatory and /or legal issues are both binding business environment constraints, policy reforms need to be implemented in parallel or prior to the provision of infrastructure to maximize the private sector’s ability to leverage these investments . PPPs can leverage modest public resources not only to bridge infrastructure gaps , but also to improve public services and achieve broader social objectives . The PPP with Rio Tinto began as a vehicle to crowd in Rio Tinto’s mining investment and provide a new multi -use port for Fort Dauphin. Over time, the partnership evolved to mobilize private investment towards the improvement of public services (water, electricity, and sanitation) and human capital. When political stability , leadership and ownership at the central government level diminishes , project implementation can still be effective , if engagement at local government levels is high . Despite prolonged political crisis within the central government , the project was able to maintain focus and implementation momentum through regional steering committees and a strong PIU . This suggests that, for agglomeration-oriented investment projects with geographic specificity , local rather central government ownership is the more relevant ingredient for effective implementation , especially when there is institutional instability and shifting priorities at the central level . 14. Assessment Recommended? Yes No Why? Why ? This was a very complex project with lots of important aspects to it , particularly with regards to future Bank work in the portfolio. Therefore, it would benefit from a more consolidated and focused evaluation . 15. Comments on Quality of ICR: This is a candid, comprehensive, and well documented ICR, and the Bank team is commended for having succeeded in writing a clear storyline of a complex and multi -sector operation that stretched over 10 years (2005-2014). The report covered well the context of the project design and implementation , and was centered around the efforts made to filter, among the many achievements of the project , those that contributed to the desired outcome of the project . The ICR was also balanced to a major extent . While striving to showcase project successes , shortcomings in the project design and implementation were also acknowledged and explained . Sufficient attention was paid to the evidence related to results in terms of outputs , outcomes and impact of the economic activity spurred by the growth pole projects, and the list of lessons learned were generally derived from the experience of project implementation . Areas that could have been improved include the following : (i) the methodology used to conduct the split project assessment, and (ii) more documentation on the role played by IFC and the private sector contribution . While the length of the ICR is beyond the norm , IEG considers this ICR as exemplary because it is a clear and thorough account of a very complex project . a.Quality of ICR Rating : Exemplary