Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) Report Number : ICRR0020743 1. Project Data Project ID Project Name KH - Trade Development Support P109648 Program Country Practice Area(Lead) Additional Financing Cambodia Trade & Competitiveness P147231,P147231 L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) TF-93573 31-Mar-2012 12,350,000.00 Bank Approval Date Closing Date (Actual) 07-Jan-2009 14-Aug-2016 IBRD/IDA (USD) Grants (USD) Original Commitment 15,450,000.00 15,450,000.00 Revised Commitment 14,715,653.47 14,715,653.47 Actual 14,715,653.47 14,715,653.47 Prepared by Reviewed by ICR Review Coordinator Group Antonio M. Ollero J. W. van Holst Christopher David Nelson IEGFP (Unit 3) Pellekaan 2. Project Objectives and Components a. Objectives According to the Multi-Donor Trust Fund Grant Agreement (GA) (page 4), the project development objective (PDO) of the Trade Development Support Program (TDSP) of the Kingdom of Cambodia was: "to increase the Recipient’s (the Royal Government of Cambodia’s) capacity in formulating and implementing appropriate trade policies". The statement of the PDO differed slightly from that used in the Project Appraisal Document (PAD) (page 4): "to increase the Royal Government of Cambodia’s efficiency in formulating and implementing effective trade Page 1 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) policies". In the GA, "capacity" in formulating and implementing trade policies replaced "efficiency" in formulating and implementing trade policies. And "appropriate" trade policies replaced "effective" trade policies. Although the GA did not define what "appropriate" trade policies were, the Implementation Completion Report (ICR) (page 13) interpreted "appropriate" trade policies these to mean: (a) policies identified in the Diagnostic Trade Integration Study (DTIS) of 2007, namely on trade facilitation, sanitary and phyto-sanitary (SPS) standards, technical barriers to trade (TBT), trade information and transparency, capacity development, institutional coordination, and aid effectiveness; (b) policies representing Cambodia’s international obligations to the World Trade Organization (WTO); and, (c) "widely-accepted best practices". b. Were the project objectives/key associated outcome targets revised during implementation? No PHEVALUNDERTAKENLBL c. Will a split evaluation be undertaken? No d. Components The project comprised four components (GA, page 4, and PAD, pages 5-6): Trade Policy Formulation and Implementation (US$5.7 million estimate at appraisal, US$6.48 million estimate at the second restructuring of the project, US$7.58 million estimate at the third restructuring, US$8.78 million at the fourth restructuring; US$7.87 million actual) aimed to assist the Government implement its commitments to the World Trade Organization (WTO) in three areas: technical barriers to trade (TBT) and sanitary and phyto-sanitary (SPS) standards; the Action Plan on Trade Facilitation; and, legal reforms arising from Cambodia's accession to the WTO in 2004. Performance Monitoring (US$1.0 million estimate at appraisal, US$0.23 million estimate at the second restructuring, US$0.53 million estimate at the third restructuring, US$0.96 million at the fourth restructuring; US$0.94 million actual) aimed to support the development of a transparent, consistent and sustainable performance monitoring system for various trade-related agencies to monitor progress in trade policy implementation and to provide feedback on the quality of the business environment. Institutional and Human Capacity Building (US$4.85 million estimate at appraisal, US$2.76 million estimate at the second restructuring, US$3.26 million estimate at the third restructuring, US$1.87 million at the fourth restructuring; US$2.3 million actual) aimed to strengthen the institutional capacity and individual human capacity in Cambodia by equipping the Government’s staff with appropriate skills and experience to develop and implement trade policy and by designing and providing for a Merit-Based Performance Incentive (MBPI) scheme. Implementation Support to the TDSP (US$0.8 million estimate at appraisal, US$2.89 million estimate at the second restructuring, US$4.09 million estimate at the third restructuring, US$3.86 million at the fourth Page 2 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) restructuring; US$4.33 million actual) aimed to support the capacity of the Ministry of Commerce (MOC), through its Department for International Cooperation (DICO), to act as secretariat for the Trade Sector- Wide Approach (Trade SWAp) and as program manager for the TDSP and to support other Government departments’ and agencies’ capacities in implementing the TDSP. e. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The project cost was estimated at appraisal at US$12.35 million. The revised project cost, following the provision of additional financing of US$3.1 million, was US$15.45 million. The actual disbursement was US$14.72 million Financing: The project was financed through a recipient-executed trust fund, the Cambodia Trade Development Support Program Trust Fund (TF093573), under a parent Multi Donor Trust Fund (MDTF) (TF071046) funded by the Danish International Development Agency (DANIDA), the European Union (EU), and the United Nations International Development Organization (UNIDO). The MDTF also created three Bank-executed trust funds (BETFs) that financed activities related to the TDSP: (a) TDSP Implementation Supervision (BETF093561), in the amount of US$0.6 million; (b) TDSP Facilitation and Advisory Service (BETF093560), US$4.9 million; and, (c) IFC Advisory Service on Investment Policy (BETF017888), US$0.2 million. Borrower Contribution: Counterpart funds included: (a) a US$250,000 contribution to the Merit-Based Performance Incentive (MBPI) scheme under the third component of the project, which was planned at appraisal but discontinued after the first restructuring; and (b) US$800,000 which was added later in the project to fund the business registration automation activity. Dates: The project was approved in January 7, 2009 and became effective in March 9, 2009. The project was restructured four times: in December 29, 2010; March 29, 2012; January 31, 2014; and, March 31, 2015. The project closed in August 14, 2016, almost three and a half years after the original project closing date of March 31, 2012. Restructuring: The first Level II restructuring of the project in December 2010: (a) removed the MBPI as a disbursement category following the agreement between the Bank and the Government to replace the provision of salary supplements to Government officials with a temporary system of Priority Operating Costs (POCs) for critical Government departments implementing the Trade Sector Wide Approach (Trade SWAp); and (b) revised the expenditure categories, financial management arrangements, and a results indicator to reflect the change. The second restructuring of March 2012: (a) discontinued the funding of the POCs at the request of the MDTF donors and reallocated the funding to other expenditure categories; (b) reduced the funding of the second and third components of the project and reallocated the funds to the first and fourth components of the project; (c) modified the Grant Agreement to align procurement under the project with the Bank’s updated Procurement Guidelines and Consultant Guidelines; and, (d) extended the project closing date from March 31, 2012 to January 31, 2014 to make up for delays encountered at the project preparation Page 3 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) stage and to take advantage of an extension in the life of the parent MDTF. The third restructuring of January 2014: (a) provided additional financing to the project of US$3.1 million from the EU to scale up and expand the project activities while leaving the project components and the Results Framework unchanged; (b) distributed the additional financing to the first component of the project, US$1.1 million; the second, US$0.3 million; the third, US$0.5 million; and the fourth, US$1.2 million; and (c) extended the project closing date from January 31, 2014 to March 31, 2015. The fourth restructuring of January 2015: (a) added a new outcome indicator; and, (b) extended the project closing date from March 31, 2015 to August 14, 2016. 3. Relevance of Objectives & Design a. Relevance of Objectives The project was relevant to economic conditions in Cambodia at project appraisal in 2008. At that time, the economy had grown a remarkable 10 percent per year for about 10 years, and poverty had trended downward. With Cambodia joining the Association of Southeast Asian Nations (ASEAN) in 1999 and the World Trade Organization (WTO) in 2004, international trade and investment had contributed significantly to the strong economic performance. Nonetheless, trade had yet to be fully mainstreamed in the national development strategy. In response, the Government introduced a Trade Sector-Wide Approach (Trade SWAp) in 2008 to provide a common platform for trade policy making and implementation among different Government agencies and to allow the coordination of trade-related technical assistance among Cambodia’s development partners. The Trade SWAp, as initially developed in 2008, was underpinned by three pillars: (a) legal and institutional cross-cutting reform for trade development; (b) product and services export supply development; and, (c) capacity development for Trade SWAp management. The TDSP, appraised also in 2008 and made effective in 2009, supported the first and third pillars of the Trade SWAp. The project continues to be relevant to economic conditions in Cambodia at project closing in 2016. The Trade SWAp remains the organizing framework for trade policy making and trade-related assistance coordination in Cambodia. In 2014, the Government articulated a new Cambodia Trade Integration Strategy (CTIS) to serve as a roadmap for implementing the Trade SWAp over the four-year period from 2014 to 2018. The CTIS updated the key reform areas of the Trade SWAp, re-articulating its pillars in a results framework as consisting of: (a) increasing the competitiveness of Cambodian exporters in world markets through a strengthened export business environment; (b) expanding and diversifying Cambodia’s exports through strengthening supply in current and new sectors, entering markets, and moving up global value chains (GVCs); and, (c) strengthening the capacity of the Government and Cambodian stakeholders to manage the trade agenda and trade challenges. The CTIS also added transportation logistics as a new cross-cutting reform issue under the first pillar, and skills gap in the export sector under the third pillar. The TDSP, with its focus on the first and third pillars, remains aligned with the goals advanced by the Trade SWAp and the Page 4 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) implementation roadmap outlined by the CTIS. The project was aligned at appraisal with the Bank Group’s Country Assistance Strategy (CAS) for Cambodia for.FY2005-08. The CAS supported six objectives organized around two pillars: (a) removing the governance constraints to attain the Cambodia Millennium Development Goals (MDGs), and (b) supporting the strategy and investments to attain the Cambodia MDGs. The TDSP was directly aligned with the first CAS objective, articulated in the first pillar --- to promote private sector development for poverty reduction. The objective supported the Government’s strategy to reduce poverty through export-led growth by building the institutions to promote export diversification. The project continues to be aligned at closing with the Bank Group’s Country Engagement Note (CEN) for Cambodia for FY2016-17. The objectives of the CEN are in line with Cambodia’s development priorities: (a) supporting the export-driven economy by improving the business climate and addressing competitiveness bottlenecks; (b) improving services delivery to address vulnerability and to generate opportunities for the poorest to build assets and develop income earning opportunities; and, (c) deepening the Bank Group knowledge base for future engagement in Cambodia. The TDSP is directly aligned with the first of these objectives. Rating High b. Relevance of Design The overall design of the project was broadly aligned to the project’s objectives. The project development objective --- to increase the Government of Cambodia’s capacity in formulating and implementing appropriate trade policies --- was formulated generally enough to encompass the broad set of goals, pillars and activities of the Trade SWAp to which the TDSP was aligned. The TDSP was designed to be specifically supportive of the first and third pillars of the Trade SWAp, focusing on policy development, performance monitoring, and capacity building. The PDO was consistent with the mandates of the first and third pillars of the Trade SWAp. The Results Framework for the project followed a logical chain from component activities to outputs and outcomes, and to the PDO. Helping accelerate the implementation of Cambodia’s commitments to the WTO, developing a transparent and consistent performance monitoring system for trade agencies, strengthening the capacity of individuals and institutions to develop and implement trade policy, and supporting the capacity of the Department of International Cooperation (DICO) in the Ministry of Commerce (MOC) to act as secretariat to the Trade SWAp should result in: a modernized regulatory framework and standards; a strengthened institutional framework, coordination and M&E system; strengthened human resources, technical competencies and training capacities; and, streamlined and automated traded procedures with supporting information and communication technology (ICT) platforms. These outputs should result in the achievement of the PDO in terms of the following outcomes: stronger government ownership, autonomous formulation of strategies, and Page 5 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) engagement in international trade negotiations; improved governance, transparency and accountability of trade policy; and, the implementation of more efficient and predictable trade procedures. While the results chain was logical, the project's choice and formulation of the results indicators to measure the achievement of the planned outputs and outcomes lacked specificity and evidence on attribution. This deficiency should not count against the favorable rating for relevance of design, but rather against the rating for M&E design (see Section 10.a). Rating Substantial 4. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective To increase the Government of Cambodia’s capacity in formulating and implementing appropriate trade policies. Rationale Outputs The TDSP supported and funded 29 activities (also termed "projects" under a programmatic approach), in four components, that produced 32 outputs. Measured against the targets, the project fully met most of its expected outputs for trade policy formulation and implementation, with a few exceptions. These results were recorded in the ICR. • Compliance by Cambodia with the Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) --- the international treaty binding on WTO members and administered by the WTO to ensure non-discrimination in the adoption and implementation of technical regulations and standards --- improved. The Government: (a) developed SPS standards for key products, based on international criteria; (b) streamlined the SPS certification procedures and prepared them for automation; and, (c) finalized the guidelines covering the processing and handling of frozen food and fisheries products. The target was to enhance product quality and safety in compliance with international SPS standards. In the baseline, the Cambodia had an incomplete SPS regulatory system, with occasional non-compliance by the country with the SPS Agreement. • Compliance by Cambodia with the Agreement on Technical Barriers to Trade (TBT Agreement) --- the international treaty binding on all WTO members and administered by the WTO to ensure that technical regulations, standards, testing, and certification procedures do not create unnecessary obstacles to trade - -- partially improved. The Institute of Standards of Cambodia (ISC) developed standards for key products Page 6 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) that were based on international criteria and were endorsed by the private sector. The ISC itself was accredited by an international standards setting body. The target was to enhance product quality in line with national technical regulations and international TBT standards. In the baseline, Cambodia had an incomplete TBT regulatory system, with occasional non-compliance with the TBT Agreement. • Cambodia improved its Logistics Performance Index (LPI) ranking, which measures the efficiency of its border agencies, including customs. Cambodia completed most of the 12-Point Action Plan on Trade Facilitation, progressing from 104th in its LPI ranking in 2007 to 77th in 2016. The target was to substantially complete the 12-Point Action Plan by the project completion date, and improve the LPI ranking. • Cambodia improved the degree of compliance of its legal framework with its WTO obligations. Cambodia enacted or drafted five laws and regulations: (a) the sub-decrees on non-tariff measures, national trade repository, and customs valuation; (b) the law on copyrights and trademarks; (c) the law on e-commerce; (d) the excise tax legal framework; and, (e) the law on commercial leasing. The target was to draft, review and finalize key trade-related laws. In the baseline, the Cambodian trade regime had only a patchy compliance with the country’s legal obligations to the WTO. The project met its output targets for performance monitoring. • The Ministry of Commerce (MOC) created an effective monitoring and evaluation (M&E) system to track the implementation of the Trade SWAp. It created a trade portal, judged to be at par with international standards. Cambodia had a weak and fragmented M&E system in the baseline. The targets were to implement a transparent, consistent and sustained trade monitoring system; develop and establish a trade portal; and, provide some evidence of the automation of the functions and activities of the MOC and key trade agencies. The project fully met its output targets for institutional and human resource capacity building in the trade sector. • As a result of the project, the MOC coordinated with other Government agencies on trade policy. Key MOC departments --- the DICO, Trade Statistics, Human Resources, and Audit --- were strengthened. Key functions, including the issuance of certificates of origin, were automated. The capacity of several MOC departments and of related Government agencies had been weak historically. The target was to get the MOC to function as a change agent coordinating with other Government ministries and stakeholders to use trade as the means to enhance economic development and social welfare in Cambodia. Outcomes The project substantially achieved the objective to increase the Government of Cambodia’s capacity to formulate and implement appropriate trade policies. The Government implemented appropriate trade policies. Page 7 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) • The Government implemented measures that affirmed its commitment to and compliance with the SPS Agreement and the TBT Agreement and its plans for legislation in a wide range of economic areas associated with membership in the WTO. On its accession to the WTO in October 2004, Cambodia had committed, among others, to fully implement the TBT Agreement starting in January 2007 and the SPS Agreement by January 2008 (and to gradually implement the agreements in the transition). Cambodia had also provided the WTO a legislation plan for trade-related economic policies, which constituted part of its obligations to the WTO. • The Government mainstreamed trade in the country’s national development strategy, the Cambodia National Strategic Development Plan for 2009-13 (ICR, page 60). • The Government firmly established the Trade SWAp as the framework for planning and coordinating trade policy in Cambodia. The Trade SWAp was, by no means, a complete framework by the end of the project in 2016 --- the Trade SWAp had yet to “fully play its role as the coordinating mechanism for all aspects of trade policy” (ICR, page 19). But firming up the framework for trade policy was a long-term process that the project was not expected to complete by the project closing date in any case. Nonetheless, and in a positive response to the Government’s efforts, the country’s development partners have since allocated funding for priority trade-related assistance to Cambodia through the Trade SWAp. • Six completed Annual Performance Reviews (APRs) as well as independent evaluations reported progress with the implementation of the Trade SWAp by the project closing date, including the significant strengthening of the framework’s mechanisms. The target for this first of four PDO-level outcome indicators for the project was for the APRs and third-party analysis to provide evidence of progress with the Trade SWAp. • A roadmap for the implementation of the Trade SWAp for 2014-18 was furthermore adopted in 2014. And the EU committed to fund a follow-up program to the TDSP. The target for this second outcome indicator was for some agreement to be reached on further support for the TDSP. • It is to be noted that Cambodia also met the third and fourth outcome indicators for the project --- the time needed to start a business in Cambodia was reduced 16.3 percent from 104 days in 2014 to 87 days in 2016, and the cost of starting a new business was reduced 47.5 percent from 150.6 percent of per capita income in 2014 to 79 percent in 2016. But, this ICR Review does not consider these indicators, which are not related to Cambodia's participation in international trade, to be suitable measures of the Government’s ability or capacity to formulate and implement trade policies. Hence, this ICR Review discounts these as evidence for the achievement of the project objectives. The Government built up its institutional capacity for the conduct of trade policy. • The MOC’s Department for International Cooperation (DICO) has emerged as the lead institution for managing trade-related development programs in Cambodia. DICO had acted as the program manager of the TDSP and as the secretariat to the Trade SWAp. • The MOC’s Trade Training and Research Institute (TTRI) is equipped to enhance the institutional and technical capacities of MOC departments and other trade-related agencies. TTRI was established, with Page 8 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) support from the project, as the training and research center for the MOC. • The Cambodia Trade Integration Strategy (CTIS) for 2014-18 contends that while some coordination and capacity issues remain, recent trade policy formulation and implementation practices represent a marked improvement over the "severe institutional weaknesses, lack of ownership, and fragmentation" prevailing before the project --- with "improved coordination between Cambodia and its development partners and, to a lesser extent, stronger dialogue between the Government and the private sector" (ICR, page 14). • There remains institutional capacity building work yet to be done, of course. In particular, “the participation of the private sector and civil society in policy formulation and implementation is still insufficient” (ICR, page 19). However, institution building is a long-term process and the project had not targeted to achieve all facets of institution building with completeness and finality at project close in 2016. • Overall, Cambodia substantially built up its institutional capacity for trade policy under the project, relative to the baseline conditions and relative to the stated project objectives. In reviewing the effectiveness of aid for trade programs in eight developing countries, the International Centre for Trade and Sustainable Development (ICTSD) concluded that Cambodia has proved to be an example of good practice for trade-related capacity building (ICR, page 14). Rating Substantial PHREVDELTBL PHREVISEDTBL 5. Efficiency Economic Efficiency The PAD (page 14) did not compute an economic rate of return (ERR) or financial rate of return (FRR) for the project, as the complete set of project activities had not yet been determined at appraisal. The PAD suggested that the impact of the project would likely be similar in magnitude to that of the Trade Facilitation and Competitiveness Project (TFCP) --- an ERR in excess of 200 percent, and an FRR of about 144 percent. The ICR (pages 35-40) offered various measures of the project’s economic efficiency using different approaches. • Based on the argument that improvements in the trade environment resulting from the project contributed to the growth in exports in 2010-15 (exports grew at an annual compound rate of 19 percent in 2009-15 from 14 percent in 2002-08), the ICR computed the Net Present Value (NPV) of the project as ranging from US$7.1 million (on a low attribution rate of 1 percent of the increase in exports, and high discount rate of 14 percent) to US$153.0 million (on a higher attribution rate of 5 percent and a lower discount rate of 8 percent). Page 9 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) If the attribution rate were a conservative 1 percent and the discount rate a reasonable 10 percent, the NPV would be US$15.3 million. • Extrapolating the export growth rate linearly, and extending the analysis to 2020, the NPV over 2015-20 would be US$32.9 million. In both cases, the results of the NPV analyses are conservative, since they only count the increase in exports in the benefit stream but exclude the increases in foreign direct investment (FDI), in employment, and in customs revenues arising from improvements in the trade environment. • Separately, the NPV from project investments in the Automated Systems for Customs Data (ASYCUDA), in the automation of issuances of Certificates of Origin (COO), and in the automation of trademark registration, was computed as reaching US$10.5 million over the twenty-year period 2012-31 using a 10 percent discount rate. • To measure the cost-effectiveness of the project, the ICR considered operations in the region and elsewhere that were deemed comparable to the project. Compared to Lao PDR which initiated four projects in 2008 aimed at facilitating trade and building the capacity of trade-related agencies at a cost of US$35.5 million, and Afghanistan, two customs reform and trade facilitation projects in 2004-17 at a cost of US$112.0 million, Cambodia's TDSP cost only US$15.45 million. Operational Efficiency The project scored both positive and negative points on operational efficiency. • The project had a slow start and took four years longer to complete than originally planned (although the expansion of the project activities by US$3.1 million at the third restructuring accounted for some of the additional time needed to complete the project). • The small average size of the first batch of activities increased the project transaction costs, fragmented the project resources, stretched the capacity of the Department of International Cooperation (DICO) of the Ministry of Commerce (MOC) which acted as the Project Implementation Unit (PIU), and accounted for the limited results in the first three years of project implementation. Minor activities were only partially completed. On the other hand, all the major activities of the TDSP were completed by the project closing date and led to important and durable outcomes, especially in terms of capacity building. • Importantly, the project was completed under budget. • Moreover, compared to Lao PDR, which spent US$12.5 million on its own customs data automation initiative, and Afghanistan, US$33.0 million, Cambodia spent US$2.2 million for the Automated Systems for Customs Data (ASYCUDA) rollout. Efficiency Rating Substantial Page 10 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) a. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0 Not Applicable 0 ICR Estimate 0 Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome The outcome for the project is rated as Satisfactory because there were only minor shortcomings in the relevance of objectives and design, in the operation’s achievement of its objectives, and in its efficiency. Specifically, the relevance of objectives is rated High. The relevance of design is rated Substantial. The efficacy of the project is assessed as Substantial. The efficiency of the project is assessed as Substantial. a. Outcome Rating Satisfactory 7. Rationale for Risk to Development Outcome Rating The risks to the sustainability of the project’s development outcome are assessed as Modest. Global macroeconomic risk: Uncertainties in the global trade environment, including rising protectionism in major markets, could hamper trade and economic growth globally, affecting exporting countries including Cambodia. Political risk: Future changes in administration (Cambodia will hold its next general elections in July 2018) pose the risk that political commitment to the objectives and outcomes of the Trade SWAp and of the TDSP could falter or weaken. The risk could be mitigated by the Bank continuing its country dialogue with Cambodia on trade issues, including through several ongoing and planned advisory and analytical projects. Institutional risk: Although many of the project’s outcomes and outputs are deemed durable, institutional risk nevertheless needs careful monitoring and warrants mitigation measures. Special focus should be placed on the transfer of knowledge from project consultants to the staff of the Project Implementation Unit (PIU); the retention by the Government agencies of trained staff; the maintenance of information technology (IT) platforms created under the project, including those for the Certificate of Origin (COO) system, the trademark research Page 11 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) facility, and the National Trade Repository (NTR); and, the further development of Trade Training and Research Institute (TTRI). Financing risk: Funding has so far been available to support the Trade SWAp. Financing from the WTO Enhanced Integrated Framework (EIF) continue to support Trade SWAp meetings and the PIU. Future funding will likely be available in the near term to strengthen the TDSP outputs including the National Single Window (NSW) and the TTRI. Cambodia’s recent ratification of the WTO Trade Facilitation Agreement also gives it access to dedicated donor funding sources. However, gradually reducing the Trade SWAP’s dependence on donor support and increasing instead its reliance on government funding should be a vital test of the sustainability of the TDSP’s development outcome. In this regard, the recent allocation to the MOC of additional resources from the Government’s general budget is a positive development. a. Risk to Development Outcome Rating Modest 8. Assessment of Bank Performance a. Quality-at-Entry The project was prepared based on a sound analysis of the challenges confronting Cambodia’s trade and business sector. A Diagnostic Trade Integration Study (DTIS) and an Investment Climate Assessment (ICA), both prepared in 2007, helped identify the binding constraints to the trade sector and to the business environment to which the project interventions were directed. The project design was also informed by issues discussed between the Government and private industry in the Government-Private Sector Forum (GPSF), including on governance and inter-agency coordination. The components and activities included in the TDSP were selected on the basis of their strategic relevance to the country’s development agenda, their complementarity with other donors’ development programs, and their ability to exploit the Bank’s comparative advantage among other international agencies. The project design took cognizance of lessons learned from the Bank’s early operations supporting trade facilitation reforms in Cambodia, including lessons drawn from the Trade Facilitation and Competitiveness Project (TFCP) which was implemented in 2005-12. In particular, the TDSP recognized from the TFCP that: trade development needed an integrated strategy combining policy dialogue and technical assistance; an adaptive learning-by-doing approach was suitable to the dynamic nature of trade; and, institutional reform and capacity building were key to improving the quality of trade policy-making. The Bank adopted a "programmatic" approach to the TDSP, favoring government ownership, institutional coordination, and operational flexibility. With only the broad areas of support --- the four components and early period activities --- determined at appraisal, the Bank enabled: (a) the line ministries to propose activities during project implementation and have them approved by an inter-ministerial committee; (b) the donors to leverage the Multi-Donor Trust Fund (MDTF) recipient-executed resources with Bank-executed Page 12 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) trust funds; and (c) the Ministry of Commerce (MOC) Project Implementation Unit (PIU) to assume fiduciary and procurement responsibilities over the project on behalf of other implementing agencies, The Bank rightly anticipated the substantial risks involved in implementing the TDSP --- the weak governance environment in the country, the low capacity of the Government agencies, and the potential lack of coordination among the project implementing agencies. To this end, the Bank thoughtfully considered a number of risk mitigation measures. The Bank directed the TDSP to support the broader Cambodia Trade SWAp agenda that had been officially adopted prior to the development of the TDSP. It also dedicated specific project components and project activities to support institutional capacity building among Government agencies. And, it adopted strengthened financial management and procurement procedures. While the Bank worked carefully to develop the project, it overlooked certain design aspects. For an institution building project, the original project duration of three years was arguably too short a time frame to accomplish the capacity building objective of the TDSP. The initial set of activities planned for implementation in the early phase of the project comprised a too fragmented set of small project activities to make a visible impact on moving the project goals forward. Therefore, the project could only report limited results in the first three years of project implementation. Although the results chain in project design at appraisal was logical, the project lacked a tractable set of M&E indicators. The results indicators would be eventually refined ad-hoc during project implementation to better reflect the outcome of the project. Quality-at-Entry Rating Moderately Satisfactory b. Quality of supervision The Bank fielded 11 supervision missions during the seven-year duration of the project, less than the average two per year among Bank projects. The supervision missions produced an equal number of Implementation Supervision and Results Reports (ISRs) and Aide Memoires, each with a set of follow-up activities and agreed deadlines. The Bank task team worked proactively with the Ministry of Commerce (MOC) Project Implementation Unit (PIU) and the other implementing agencies, providing strategic direction and technical support in the implementation of the project. The team promptly called attention to implementation problems, quickly downgrading performance ratings as it saw fit. The task team also worked closely with the Government to find solutions to implementation issues, preparing several restructuring papers and processing closing date extensions as agreed with the Government and approved by the Bank. Full-time in-country implementation support, provided through MDTF-linked Bank-executed trust funds, played a key role to ensure the effective delivery of project outputs and outcomes. In particular, the TDSP Page 13 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) Facilitation and Advisory Service financed international and local consultants and staff that supported the PIU and other implementing agencies. The TDSP Facilitation and Advisory Service funded analytical work that helped inform the design and implementation of several project activities. Notwithstanding the strong effort at supervision, the Bank seriously neglected to systematically and more thoroughly improve on the M&E indicators of the project. The first, second and third restructurings were a missed opportunity to revise the sets of results indicators by which to judge the degree of achievement of the project’s objective. Similarly, the fourth restructuring introduced two new outcome indicators drawn from the Bank's Doing Business report --- the time needed to start a business, and the cost of starting a new business --- that were, however, unrelated to Cambodia's participation in international trade. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 9. Assessment of Borrower Performance a. Government Performance The Government was strongly committed to the objective of the project. The Government was actively involved in the design of the TDSP. Despite its difficult relationship with the Bank over much of the project implementation period from 2011 to 2016 (the Bank suspended new IDA lending to Cambodia in 2011-16 over the findings of the Inspection Panel on the application of safeguards in the Land Management and Administration Project), the Government worked actively with the Bank to implement the project. An inter- ministerial committee headed by the Minister of Commerce approved the activities supported by the project. The EU has noted the strong ownership of the project by the Government, in general, and the Ministry of Commerce, in particular (ICR, page 27). The Government was also strongly committed to the Trade SWAp as the organizing framework for trade policy formulation and as the coordination mechanism for trade-related donor assistance to Cambodia. The Trade SWAp, the first and third pillars of which the TDSP supported, has since been held up by the WTO as model for other developing countries to emulate. Nonetheless, the Government could have focused more to accelerate the implementation of the project. There were delays in: firming up the results framework for the TDSP; hiring the international procurement adviser and the internal audit adviser for the Project Implementation Unit; and, adopting the project Operations Manual. The ICR (paragraph 18, page 7) explains that because the project was financed by a trust fund, the lack of a Bank budget during project preparation made it challenging to complete these elements of the operation before project approval. However, discussions with the TDSP Project Team after the completion of the ICR indicate that the Government could have focused more on these requirements to accelerate the implementation of the project Page 14 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) Government Performance Rating Moderately Satisfactory b. Implementing Agency Performance The Department for International Cooperation (DICO) at the Ministry of Commerce (MOC) served as the Project Implementation Unit (PIU) to coordinate implementation of the TDSP. The 29 activities supported by the TDSP were executed by over a dozen different Government ministries and agencies. Although it is difficult to carry out a thorough assessment of each of the dozen agencies’ performance, it is noteworthy that most of the 29 activities were completed satisfactorily. In the few cases where an agency under-performed, the PIU intervened to improve performance (ICR, page 27). However, the PIU made inadequate contributions to the M&E and made no move to improve the PDO indicators. There were no fiduciary issues left unresolved at the project closing date. The two outstanding recommendations of the audit report of June 2016 --- that (i) cash advances be liquidated within the timeframe set in the Supplementary Financial Management Manual, and that (ii) the project declare and withhold taxes on consultant services --- were implemented by the project closing date, according to the TDSP Project Team. Implementing Agency Performance Rating Moderately Unsatisfactory Overall Borrower Performance Rating Moderately Satisfactory 10. M&E Design, Implementation, & Utilization a. M&E Design The PAD (pages 28-36) defined an M&E design for the project that it described was a "mix of indicators measuring quality of processes as well as specific impacts on trade". The plan established the institutional arrangements, monitoring responsibilities, and reporting frequencies for M&E, while acknowledging that the PIU lacked the capacity and needed support for the M&E function. To evidence the achievement of the PDO, the PAD defined the outcome indicator to be a composite of: "the regular practice of a streamlined Government-led process for consultation and financing between Government policymakers and implementing agencies and between the Government and donors" and "satisfactory progress in implementing the Trade SWAp as evidenced by Annual Performance Reviews Page 15 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) (APR) and third party analysis". The PAD did not define what "regular practice" or "satisfactory progress" meant. Two of the five targets assigned to this outcome indicator were straightforward: that the first Trade SWAP three-year rolling plan is finalized; and, that the first, second, third and fourth APRs are completed. The other three targets were, however, less strictly defined and subject to interpretation: that there is agreement on a follow-up work program; that agreement is reached on further TDSP support; and, that evidence of progress in implementing the Trade SWAP is in the APR. b. M&E Implementation No formal action was taken to formally revise the outcome and output indicators for the project, either through the Restructuring Papers or amendments to the Grant Agreement, other than in two cases: • At the first restructuring in December 2010, one of five targets for the output indicator "Increased efficiency and effectiveness of functions performed in critical Ministry of Commerce departments and targeted agencies", namely, that "The Merit-Based Performance Initiative (MBPI) be designed, implemented and reviewed", was dropped following the decision by the Bank and the Government to replace the provision of salary supplements to Government officials with a temporary system of Priority Operating Costs (POCs) for critical Government departments implementing the Trade SWAp. The POC system would also ultimately be scrapped at the second restructuring in March 2012. • At the fourth restructuring in January 2015, a second outcome indicator (in two parts) was added --- "The reduced time and cost of opening a new business in Cambodia", for which the target was "A ten percent reduction in the time, and in the cost, of opening a new business". However, neither part was related to Cambodia's participation in international trade and should not be used to measure the Government's ability or capacity to formulate and implement trade policies. Rather, it was left to the supervision teams to provide clarity to the output indicators. The supervision teams revised some of the output indicators during project implementation. In the ICR’s assessment (page 9), these changes were "modifications made to clarify [the PAD] formulations". • For the output indicator "Increased coverage of sanitary and phyto-sanitary (SPS) regulations and support services", the target to "Increase the export volume of products requiring compliance with SPS by 10 percent each in years 2, 3 and 4" was changed to "Product quality and safety is enhanced in line with international standards requiring SPS compliance". • For the output indicator "Proportion of containers physically open", the target "25 percent of containers physically open" was changed to "Overall reduction in the number of containers physically open". • For the output indicator "Evidence of satisfactory progress in the 12-Point Action Plan and its successors", the target "Diagnosis of status of 12-Point Plan, with identification of gaps suitable for additional subsequent TDSP support; CamControl begins to apply risk management plan" was changed to "The 12-Point Plan substantially complete; An increase in Cambodia’s ranking on the Logistics Performance Index (LPI)". Page 16 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) • The output indicator "Evidence of increased clarity/rationalization in institutional responsibilities for sanitary and phyto-sanitary (SPS) standards and technical barriers to trade (TBT)", for which the target was a cumulative "60 percent progress in the implementation of the action plan", was not reported on after the sixth ISR. c. M&E Utilization The ICR contends (page 10) that the roadmap for the Trade SWAp, established by the CTIS in 2014, effectively served as the framework to assess the progress of the project. M&E Quality Rating Substantial 11. Other Issues a. Safeguards Environmental and Social Safeguards: The project was classified as an Environmental Category C, at appraisal. The project did not trigger any Bank safeguard policies. No environmental or social safeguard issues were raised during implementation. b. Fiduciary Compliance Procurement: The procurement capacity of the PIU was initially determined as inadequate at appraisal. There was a high turnover of procurement staff, which hampered the implementation of the procurement plan in the first year and a half of the project. The procurement performance improved by the second year however, following the hiring of international and local procurement consultants and the training of the procurement staff. The final rating for procurement was Satisfactory. Financial Management: The financial management capacity of the PIU was initially determined as inadequate at appraisal. As with the procurement function, there was a high turnover of financial management staff and consultants. Some weaknesses with controls were also identified by early supervision missions. The financial management performance, however, improved steadily over time. Appropriate remedies were taken to address the control issues by the time of the Mid-Term Review in September 2010. Two financial management-related recommendations made by the audit of June 2016 were implemented before the project closing date. Quarterly Interim Financial Reports were prepared and submitted to the bank on time during the last four years of the project. All audit opinions were clean and submitted on time in the last five years of the project. Page 17 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) The final rating for financial management was Satisfactory. c. Unintended impacts (Positive or Negative) --- d. Other No other issues were raised by the ICR. 12. Ratings Reason for Ratings ICR IEG Disagreements/Comment Outcome Satisfactory Satisfactory --- Risk to Development Modest Modest --- Outcome Moderately Bank Performance Moderately Satisfactory --- Satisfactory Moderately Borrower Performance Moderately Satisfactory --- Satisfactory Quality of ICR Substantial --- Note 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 following lessons are drawn from three cited in the ICR (pages 27-28), with some adaptation. Sector-Wide Approaches (SWAps) are an integrative way to bring governments, donors, and stakeholders together to help develop a sector. But, the lesson of this operation is that the operating principles of SWAps must be highly developed and robust enough to be effective at helping broaden dialogue, formulate policies, generate expenditure programs, and coordinate funding. It is also essential for a SWAp to establish adequate monitoring arrangements. Cambodia’s Trade SWAp was a nascent program and did not have a clear results framework in 2008, which made it difficult for the TDSP to determine the first set of high- impact activities that would support the first and third pillars of the Trade SWAp. Page 18 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) The programmatic approach must strike a difficult balance between giving government implementing agencies the responsibility and the discretion to select projects for funding versus determining early on the projects that are best able to advance the project objectives. It cannot be said that each of the 29 activities supported by the TDSP contributed equally to the objectives of the project. Considering this fundamental tension in the programmatic approach, the lesson is that clear principles must set for the identification and development of projects and strong mechanisms must be designed for their appraisal and selection. Combining activities that offer immediate payoffs and those that yield long-run benefits are an optimal way to improve the trade sector and the business environment in a country. The automation of trade business processes and the facilitation of trade activities had rapid payoffs under the TDSP. But, it was equally important for the TDSP to focus on the longer-term efforts to build institutional capacity in trade policy formulation and implementation, including through Government staff training, business and economic research, and public-private sector policy dialogue. Because the project implementing agencies were unlikely to be ready at project effectiveness, it was essential for the project to pursue capacity building and staff training activities, with a focus on knowledge transfer and staff retention. The lesson is that both near-term rapid-payoff activities and long-term institution-building activities are necessary for project success. 14. Assessment Recommended? No 15. Comments on Quality of ICR The ICR offers a comprehensive record of the project. It traces the origins of the TDSP interventions (ICR, pages 6-7) to Cambodia’s WTO accession in 2004, the predecessor operation Trade Facilitation and Competitiveness Project (TFCP) of 2005-11, the Diagnostic Trade Integration Study (DTIS) of 2007, the Investment Climate Assessment (ICA) of 2007, and the Cambodia Trade Sector-Wide Approach (SWAp) of 2008. It documents the restructuring of the project (pages 5-6) in 2011, 2012, 2014, 2015, detailing the changes to the project components and activities, cost allocations and funding, and performance yardsticks. The ICR explains gaps in the project data. It interprets (page 13) the term "appropriate trade policies" in the PDO statement. And, it details (pages 9-10) revisions made to the output targets in supervision reports, including several that were not documented in the Restructuring Papers or in the Amendments to the Grant Agreement. The analysis of project design and implementation issues is candid. The ICR is critical (page 9) of the original M&E design of the project, noting that, of the original set of results indicators, those aiming to measure the quality of the policy-making process were not designed to measure the results of the project "with specificity and attribution". The ICR also contends that the project’s M&E design should have been formally revised during the restructuring in 2014 or 2015, particularly after the roadmap to the Trade SWAp was updated in 2014. Instead, no adjustments were made to the targets even as the project received Page 19 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review KH - Trade Development Support Program (P109648) additional financing and the project duration was extended from three to seven years. The assessment of the project results is evidence-based. The ICR lists (pages 34-35) the 29 projects supported and funded by the TDSP, including their implementation status, disbursement rates, and performance ratings. It cites (pages 31-33) the 32 outputs produced by the four components of the project, citing, in some cases, their impacts and benefits. The ICR then examines (pages iii-vi) the output and outcome indicators and determines whether the targets, as revised, were met by the project closing date. More important, the ICR goes beyond merely tallying the results indicators to expound (pages 13-19) on whether it thought the project attained the project objective. The ICR is balanced in the sense that it affords the Government (pages 46-57), the implementing agencies (pages 44-45), and the donors (page 58) the opportunity to forward their accounts of the project. Vital views can be gleaned from these stakeholders’ comments on the draft ICR. Although the ICR was generally written following OPCS guidelines, there is at least one minor weakness with the document. The ICR offers substantive comments on the performance of the Government and the Ministry of Commerce (MOC) as implementing agency. However, it stops short of identifying the dozen other Government agencies that implemented the 29 projects supported by the TDSP and offering assessments of their project performance. This is a noticeable omission considering that a goal of the project was to strengthen the institutional capacity of trade-related agencies --- all trade-related agencies, and not just the MOC --- in policy formulation and implementation. a. Quality of ICR Rating Substantial Page 20 of 20