Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00006144 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A ORIGINAL GRANT No. TF099175 IN THE AMOUNT OF US$ 20.0 MILLION UNDER THE MULTI DONOR TRUST FUND FOR KHYBER PAKHTUNKHWA, FEDERALLY ADMINISTERED TRIBAL AREAS AND BALOCHISTAN FOR A ECONOMIC REVITALIZATION OF KHYBER PAKHTUNKWA PROJECT (P124268 and P160445) AUGUST 22,2011 AND AN ADDITIONAL GRANT No. TF0A4251 IN THE AMOUNT OF US$19.0 MILLION March 20,2017 TO THE GOVERNMENT OF PAKISTAN Finance, Competitiveness And Innovation Global Practice South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective {October 31, 2023}) Currency Unit = PKR PKR 285 = US$1 US$ = SDR 1 FISCAL YEAR July 1 - June 30 Regional Vice President: Martin Raiser Country Director: Najy Benhassine Regional Director: Mathew A. Verghis Practice Manager: Gabi George Afram Task Team Leader(s): Kiran Afzal Adja M. Dahourou Simpore ICR Main Contributor: Kishore L. Nadkarni ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AF Additional Financing BDS Business Development Services CERC Contingent Emergency Response Component CPS Country Partnership Strategy DNA Damage and Needs Assessment ERKF Economic Revitalization of Khyber Pakhtunkhwa and FATA ERKP Economic Revitalization of Khyber Pakhtunkhwa Project ERR Economic Rate of Return ESMP Environmental and Social Management Plan FATA Federally Administered Tribal Areas GoKP Government of Khyber Pakhtunkhwa GoP Government of Pakistan IRI Intermediate Results Indicator ISR Implementation Status and Results Report KITE Khyber Pakhtunkhwa Integrated Tourism Development Project KP Khyber Pakhtunkhwa BoIT Board of Investment and Trade M&E Monitoring and Evaluation MDTF Multi-Donor Trust Fund MG Matching Grant NMD Newly Merged Districts NPV Net Present Value PCNA Post-Crisis Needs assessment PDO Project Development Objective PKR Pakistani Rupee PMU Project Management Unit PPP Public Private Partnership PU Project Unit RF Results Framework SMEs Small and Medium Enterprises SMEDA Small and Medium Enterprise Development Authority START System to Assess and Reward Talent TDP Temporarily Displaced Person TF Trust Fund TIC Tourism Information Center TPMA Third Party Monitoring Agent WB World Bank TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 1 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 6 A. CONTEXT AT APPRAISAL .........................................................................................................6 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION .............................................................. 10 II. OUTCOME .................................................................................................................... 13 A. RELEVANCE OF PDOs ............................................................................................................ 13 B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 14 C. EFFICIENCY ........................................................................................................................... 20 D. JUSTIFICATION OF OVERALL OUTCOME RATINGS .................................................................. 22 E. OTHER OUTCOMES AND IMPACTS ......................................................................................... 22 III. KEY FACTORS THAT AFFECTED PREPARATION, IMPLEMENTATION AND OUTCOME ........ 23 A. KEY FACTORS DURING PREPARATION ................................................................................... 23 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 24 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 25 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 25 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 26 C. BANK PERFORMANCE ........................................................................................................... 27 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 28 V. LESSONS AND RECOMMENDATIONS ............................................................................. 29 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 31 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 41 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 43 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 44 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 46 ANNEX 6. SUPPORTING DOCUMENTS .................................................................................. 47 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P124268 Economic Revitalization of Khyber Pakhtunkhwa Project Country Financing Instrument Pakistan Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Organizations Borrower Implementing Agency Department of Industries, Commerce and Technical Government of Pakistan Education, Project Management Unit, Small and Medium Enterprise Development Authority (SMEDA) Project Development Objective (PDO) Original PDO To support the Government of Pakistan in the economic recovery and revitalization of the crisis affected areas of Khyber Pakhtunkhwa (KP) province and Federally Administered Tribal Areas (FATA), by creating sustainable employment opportunities through rehabilitation of Small and Medium Enterprises (SMEs), investment mobilization, and institutional capacity building. Revised PDO To support the Government of Pakistan in creating sustainable employment opportunities and developing the selected economic sectorsin Khyber Pakhtunkhwa province. Page 1 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 20,000,000 20,000,000 20,000,000 TF-99175 19,000,000 19,000,000 19,000,000 TF-A4251 Total 39,000,000 39,000,000 39,000,000 Non-World Bank Financing 0 0 0 Total 0 0 0 Total Project Cost 39,000,000 39,000,000 39,000,000 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 22-Aug-2011 11-Oct-2011 06-Dec-2013 30-Jun-2020 30-Jun-2022 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 29-Jun-2015 16.30 Change in Components and Cost Change in Loan Closing Date(s) 09-Dec-2015 16.36 Change in Loan Closing Date(s) 23-Jun-2016 19.96 Change in Loan Closing Date(s) 20-Dec-2016 20.00 Change in Loan Closing Date(s) 26-Jun-2020 35.64 Change in Project Development Objectives Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Legal Covenants Change in Institutional Arrangements Change in Financial Management Change in Implementation Schedule Other Change(s) Page 2 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 02-Jan-2012 Satisfactory Moderately Satisfactory 0 02 08-Jul-2012 Satisfactory Moderately Satisfactory 2.72 03 20-Nov-2012 Satisfactory Moderately Satisfactory 3.58 04 08-Jun-2013 Satisfactory Moderately Satisfactory 4.56 05 22-Nov-2013 Satisfactory Moderately Satisfactory 5.99 06 31-May-2014 Satisfactory Satisfactory 10.89 07 16-Mar-2015 Satisfactory Satisfactory 14.80 08 07-Jun-2015 Satisfactory Satisfactory 16.30 09 08-Dec-2015 Satisfactory Satisfactory 16.36 10 17-Jun-2016 Satisfactory Highly Satisfactory 19.96 11 06-Dec-2016 Satisfactory Highly Satisfactory 20.00 12 22-May-2017 Satisfactory Satisfactory 20.00 13 06-Dec-2017 Satisfactory Satisfactory 22.00 14 26-Jun-2018 Satisfactory Moderately Satisfactory 23.63 15 24-Jan-2019 Moderately Satisfactory Moderately Satisfactory 25.94 16 16-Aug-2019 Moderately Satisfactory Moderately Satisfactory 30.16 17 09-Mar-2020 Moderately Satisfactory Moderately Satisfactory 30.96 18 14-Sep-2020 Satisfactory Satisfactory 35.64 19 22-Mar-2021 Satisfactory Satisfactory 39.00 20 18-Nov-2021 Satisfactory Satisfactory 39.00 21 23-Dec-2021 Satisfactory Satisfactory 39.00 Page 3 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 20 Sub-National Government 20 Information and Communications Technologies 5 Other Information and Communications Technologies 5 Financial Sector 60 Micro- and SME finance 30 Other Non-bank Financial Institutions 30 Industry, Trade and Services 20 Other Industry, Trade and Services 20 Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 100 Business Enabling Environment 20 Investment and Business Climate 20 Jobs 100 Enterprise Development 23 MSME Development 23 Finance 0 Financial Infrastructure and Access 23 MSME Finance 23 Page 4 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Urban and Rural Development 0 Rural Development 35 Rural Non-farm Income Generation 35 Human Development and Gender 0 Disease Control 0 Pandemic Response 1 ADM STAFF Role At Approval At ICR Regional Vice President: Country Director: Director: Practice Manager: Task Team Leader(s): Gabi George Afram Kiran Afzal ICR Contributing Author: Page 5 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. Economic growth experienced a downturn starting 2008 with the annual GDP growth rate dropping from 4.8% in 2007 to 1.7% in 2008, 2.8% in 2009, and 1.6% in 2010 due to multiple factors.1 A major reason for this decline was the rise in terrorist activities in the bordering areas with Afghanistan as an aftermath of the war on terrorism. The most affected parts of the country were the Khyber Pakhtunkhwa province (KP) and the erstwhile Federally Administered Tribal Areas (FATA) in the North West, and the Balochistan province in the South west. These areas have consistently been among the poorest parts of Pakistan. 2. The KP and the erstwhile FATA areas in the North West lagged behind most other provinces across a wide range of social and economic indicators, with the lag even more pronounced when viewed through a gender lens.2 Estimated GDP growth for KP was already slowing in the period leading up to mid-2009, and KP experienced far higher rates of unemployment than the rest of Pakistan. Moreover, unemployment was particularly high among young men aged 15-30 years (the main resource pool for militant recruitment). 3. In early 2009, the Government of Pakistan (GoP) launched major military operations in the KP and the erstwhile FATA to eliminate the local pockets of militants. The conflict resulted in the loss of precious human lives and a huge economic cost. The military operations led to significant damage to physical infrastructure and services while displacing around three million people. The militants also increased attacks on law enforcement agencies (LEAs) as well as on private lives and property. 4. Growth in the industrial sector had stagnated in the KP region and economic activities in tourism, mining, and trading plummeted, due to security concerns and major floods in 2010. The flight of capital was having an additional negative impact on the weakened economy of the country. These crises were further amplified by the floods in July/August 2010, resulting in enormous destruction, further internal migration/displacement, and massive loss of livelihoods. The adverse effects of these crises were much more pronounced in KP and erstwhile FATA than in the rest of the country. 5. The GoP approached the international agencies to provide rapid post-crisis recovery and reconstruction in a structured manner. In this context, a Damage and Needs Assessment (DNA) was completed in 2009 with the support of the World Bank (WB) and the Asian Development Bank (ADB), covering KP, erstwhile FATA and Balochistan, which were first affected by the GoP’s actions to combat the militants. A subsequent Post Crisis Needs Assessment (PCNA) was completed in October 2010 in partnership with the United Nations (UN). 6. In 2010, the World Bank (WB) established, with support from a variety of development partners, the Multi- Donor Trust Fund (MDTF) for the crisis-affected areas of KP, erstwhile FATA and Balochistan. The objective of the MDTF was to provide financing for restoring infrastructure, improving public services and livelihoods, and 1Source of Annual GDP Growth figures is https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=PK 2Illiteracy levels are as high as 97% for women in the erstwhile FATA compared to 71% for men; the comparative figures for KP are 68 % for women and 33% for men, respectively. Page 6 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) addressing factors that contributed to destabilization in two main regions (the Northwest, comprised of KP and the erstwhile FATA, and the Southwest comprised of Balochistan). Recognizing the need for a harmonized approach to respond to the crisis, the GoP had requested the World Bank to administer the MDTF for the recovery and rehabilitation of the crisis-affected areas of KP, erstwhile FATA and Balochistan. In the first phase, the MDTF received US$ 130 million in pledges from ten donors (Australia, Denmark, Finland, European Union, Germany, Italy, Türkiye, UK, USA, and Sweden), and was later enhanced up to US$ 274 million. The MDTF funded several projects to support recovery of different sectors in both regions. 7. As a response to the KP-FATA 2009 DNA, and subsequent PCNA Report, the Economic Revitalization of KP and FATA (ERKF) Project in Northwest region was launched with an allocation of US$ 20 million from the MDTF, with a June 2015 original closing date. The ERKF Project was designed to support the economic revitalization of the crisis-affected areas of the region, through employment generating activities and restoring livelihoods. An Additional Financing (AF) of US$19 million was later granted in 2017 at the request of the GoP to scale-up, restructure and extend the project closing date to June 2020. Theory of Change (Results Chain) 8. The Theory of Change (ToC) in figure 1 was constructed ex-post for this ICR,3 using information from the ‘Results Framework and Monitoring’ sections of the Project Appraisal Document (PAD) for the original Project and the Project Paper for the AF. The Project’s activities were designed to support progress toward outputs which in turn supported the achievement of intermediate indicators that determined progress in achieving the PDO outcomes. 3Per Operations Policy and Country Services (OPCS) guidelines, including the ToC became mandatory for PADs beginning in May 2018. The ERKP was approved by the World Bank’s Regional Vice President for South Asia Region on August 22, 2011. Page 7 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Figure 1: TOC hallenges Ac vi es Outputs PDO Outcomes Impact Provide ehabilita on Matching Businesses grants to SMEs Sustainable obs created severely damaged SME Development by SMEs supported by Provide pgrada on Matching resul ng in high Support Program Project grants to SMEs Sustainable Employment demand for established support Provide Machinery pool F SMEs made sustainable grants to SMEs through Project support Provide Business Development Services (BDS) grants to SMEs eed to immediately revive jobs Iden fy scalable investment projects Private Sector Investment A rac ng Investment from generated Establish Investment Diaspora and Private Sector Facilita on authori es Investment Facilita on ini ated Investment facilita on ack of Develop website econnect authori es established Pakistan Ins tu on Building carried and strengthened Investors out to Foster Investment con dence A ract investment from and Implement eforms Diaspora and Private sector Organizing Diaspora Outreach programs Founda on laid for future ntapped development of selected poten al for Trainings in Tourism sector and Support in development of economic sectors development of pine value chain development poten al selected poten al Strengthening TE TA centers, Tourist facili es and sites Development of poten al economic economic sectors (Tourism, PBOIT and PITB supported economic sectors sectors Skill Dev, Agribusiness, IT, Suppor ng ealth care centers ealth) ini ated Private Enterprises using during orona pandemic the Tourism Management system Critical Assumptions 1. SMEs and business owners heavily impacted by the militancy occupancy, conflicts, and natural disasters in the KP and FATA regions need to be revived. 2. Small business owners are back from temporarily displacement and willing to rehabilitate/upgrade their activities to restore and create jobs in the region. 3. Government and donors’ funding is secured, and all stakeholders are committed to overcome fragility and poverty in the region. 4. Authorities such as KPBOIT, Tourist Facilities, TEVTA Centers, Mines & Minerals, Health and Tourism Departments willing to be strengthened by ERKP and supported from the regular budget of Provincial Government. Project Development Objectives (PDOs) 9. The original PDO at the time of appraisal was “to support the Government of Pakistan (GoP) in the economic recovery and revitalization of the crisis-affected areas of Khyber Pakhtunkhwa (KP) province and Federally Administered Tribal Areas (FATA), by creating sustainable employment opportunities through rehabilitation of small and medium enterprises (SMEs), investment mobilization, and institutional capacity building”. During project implementation, the PDO was revised for the Additional Financing in 2017 to “support the GoP in creating sustainable employment opportunities, generating private sector investment, and laying the foundations for the future development of selected economic sectors in KP and the erstwhile FATA”. It was streamlined further to reflect the merger of FATA with KP at a subsequent restructuring in 2020 (discussed below in the section on Significant Changes During Implementation) to “support the GoP in creating sustainable employment opportunities and developing the selected economic sectors in KP province4”. The name of the project was also changed to Economic Revitalization of Khyber Pakhtunkhwa Project (ERKP). The revisions in 4The Federally Administered Tribal Areas (FATA) were merged with KP through a Constitutional Amendment in 2018, making FATA part of the KP province, hence the deletion of the name “FATA” in the PDO in 2020. Page 8 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) the PDO did not have a significant impact on the original ambition of the Project and enabled the Project to stay aligned with the evolving circumstances and support focused SME sector development through the ERKP, especially regarding tourism and entrepreneurship. Key Expected Outcomes and Outcome Indicators 10. The original PDO indicators are given in table 1 below: Table 1: Original PDO Indicators S. No. PDO Indicators End Target 1. Number of SMEs using matching grants for rehabilitation and up-gradation 850 (at least 2-3% awarded to enterprises owned and managed by women) 2. Number of jobs restored/created (direct and indirect) 8,000 3. Percentage of all assisted SMEs operational and productive at the completion 60% of the project 4. Amount (million dollars) of investments attracted from Diaspora and migrant 10 workers from KP and FATA 5. Investment Facilitation Authority (IFA), FATA and Investment Facilitation 100 Centre (IFC), KP established and operationalized (% of completion) Components Component 1: SME Development: estimated cost at appraisal US$14 million; actual cost at completion US$22.60 million). 11. This component included direct support through matching grants (MGs) for SMEs and technical assistance (TA) that had been adversely affected by the ongoing crisis in KP and erstwhile FATA, to help them recover their productive capacity and restore lost employment. The introduction of matching grants was considered necessary in view of the factors such as; (i) devastating situation of private sector in the region and the need to support the recovery of the local economy and job creation through immediate liquidity injection; (ii) previously unaddressed market failures, namely low financial inclusion and limited presence of financial intermediaries in country’s North-West; and (iii) importance of delivering well designed, demand driven and result oriented financing instruments and business development services (BDS) for P’s underserved SMEs through local private sector development institutions, thereby also strengthening their capacities. This component also planned to promote female economic empowerment by assigning priority to eligible enterprises owned and managed by women. Support through the MGs were to be provided under three subcomponents: (i) SME Rehabilitation for businesses which were forced to shut down or operate inefficiently; (ii) SME Upgradation for individual businesses or clusters of businesses for product development, expansion Page 9 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) or to adopt new packaging etc.; and (iii) BDS for training and capacity building. During implementation, some changes were made to the component (discussed below under Significant Changes During Implementation). Component 2: Attracting Investments from the Diaspora: (estimated cost at appraisal US$ 2 million; actual cost at completion US$ 0.8 million). 12. This component aimed to help attract private investment from Diaspora and migrant workers, including through highlighting investment opportunities for overseas Pakistanis. The component included two main activities: (i) Preparation of a Pre-Feasibility Study for a Private/Public Sector Bond for SMEs that would establish the need, justification, mechanics, and structure of an appropriate financial instrument with the intent to encourage investment from overseas Pakistanis; and (ii) Preparation of an Outreach Program for Mobilizing Diaspora Investment with a focus on KP and erstwhile FATA. During implementation, some changes were made to the component (discussed below in the section on Significant Changes During Implementation). Component 3: Institution Building to Foster Investment and Implement Regulatory Reforms: (estimated cost at appraisal US$ 4.0 million; actual cost at completion US$ 9.35 million). 13. This component planned to provide support to the governments of KP and erstwhile FATA to build their capacities for implementation of economic reforms and projects aimed at improving the business climate and attracting investment to the region. During implementation, some changes were made to the component (discussed below in the section on Significant Changes During Implementation). Component 4: Supporting the Competitive Sectors: (estimated cost at AF US$ 4 million; actual cost at completion US$ 6.25 million). 14. This was a new component added in 2017 under the restructuring for AF at the request of GoKP. The component aimed to encourage focused development of priority economic sectors in KP and erstwhile FATA, including tourism in KP, and agribusiness, and marble production in erstwhile FATA (discussed further below in the section on Significant Changes During Implementation). Component 5: Contingent Emergency Response Component: (no initial allocation; actual at completion US$ 0 million). 15. This was a new component added in 2020 under a Level 2 restructuring. The component was to make provision for a Contingent Emergency Response Component CERC) to enable the Project to provide funds for any emergency response that may arise (discussed further below in the section on Significant Changes During Implementation). B. SIGNIFICANT CHANGES DURING IMPLEMENTATION 16. During the implementation period from 2011 and 2022, the Project underwent five restructurings, including an Additional Financing because of initial positive results, beneficiaries’ evolving needs and the need to complete activities in order to achieve the PDO. The first three restructurings, all Level 2, were to extend the grant closing date to allow for completion of activities impacted by the adverse security and slow implementation due to the fragile conditions. The first three restructurings were done for all the active MDTF projects at that time, due to the overall extension in the closing date of the MDTF. The fourth restructuring, in 2017, was a Level 1 restructuring to provide AF under the MDTF in the amount of US$ 19 million with an extension of the closing date to June 2020. Under the fifth (Level 2) restructuring in 2020, changes were made Page 10 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) to the PDO, some indicators, and the grant closing date was extended to from June 30, 2020 to June 30, 2022, to allow for completion of the expanded activities included under the AF and some activities whose implementation was affected by the COVID pandemic in 2020-2022 in addition to the impacts of security issues and floods. Revised PDOs and Outcome Targets 17. PDOs: As stated above in para 9, the PDOs were revised under Level 1 and Level 2 restructurings of the project. The revisions of the PDO did not have a significant impact on the ambition of the Project as the original targets as well as the revised targets regarding project outcomes were achieved or exceeded (see para. 24 below). 18. Revised PDO Indicators: During implementation, PDO indicators and targets were revised. Two new indicators were added, definitions and some targets for other indicators were revised upwards to match the Project ’s ambition to restore and create additional jobs as well as strengthen specific economic sectors of the province. Under the 2017 restructuring, the PDO indicator related to attracting investments from Diaspora and migrant workers was deleted due to issues faced in measuring it, and replaced with a revised indicator “investment attracted from diaspora and private enterprises” which would include also the private investment generated under the matching grants scheme. However, post-AF, this indicator was no longer tracked under the Results Framework. In the 2020 restructuring, this indicator was deleted. All other indicators remained but were refined and updated, while two new indicators were added to account for direct jobs created for women and the number of tourists areas supported through the Project. The table 2 shows the revised indicators. Table 2: Revised Project Indicators Original Revised Revised Baseline Original target Revised target Revised target Indicator Indicator Indicator (2017) (2020) (2017) (2020) Number of Number of Number of 0 850 2,500 2,500 SMEs using SME SME MGs for beneficiaries of beneficiaries of rehabilitation the MGs of the MGs of and which at least which at least upgradation (at 5% are owned 5% of the least 2-3% by women businesses are awarded to owned/manag enterprises ed by women owned or entrepreneurs managed by women) Page 11 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Number of Number of Direct jobs 0 8,000 13,500 13,500 direct jobs direct jobs restored and restored/creat created by the created by the ed (direct and enterprises enterprises indirect) supported supported through the under the Project Project Percentage of Percentage of MGs 0 60% 75% 75% all assisted the MGs beneficiaries SMEs beneficiaries operational operational operational and productive and productive and productive at the at the at the completion of completion of completion of the Project the Project the Project Amount Investment The indicator 0 10 10 no target – (million US attracted from was deleted indicator dollars) of the Diaspora deleted investments and private attracted from enterprises Diaspora and migrant workers from KP and FATA Investment Investment Investment 0 100% 100% 5 Facilitation facilitation promotion Authority (IFA authorities authorities KP and established in supported in Investment FATA and KP KP province Facilitation (percentage of (number) Center (IFC) KP completion) established and operational (percentage of completion) Number of Tourist areas 0 no original 50 30 private and facilities target enterprises supported using the through the Tourist Project Information Management System developed under the Project Page 12 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Number of Direct jobs 0 no original 315 315 direct jobs restored and target created for created for women women through the through the MGs Project Rationale for Changes and Their Implication on the Original Theory of Change 19. Due to the inherent fragility in the erstwhile FATA, extensions were made between 2011 and 2017 to the grant closing date. The extensions provided adequate time for completion of activities adversely impacted by militancy activities to proceed (mostly along the border with Afghanistan). The AF in 2017 was made to scale-up the activities under Component 1 (SME Development) due to a strong demand from SMEs and the government, especially to cater for the areas in the erstwhile FATA that were not accessible during the original period due to ongoing military operations to clear the area from militants. The AF also included a new Component 4 (Support for Competitive Sectors) to enable a conducive policy environment for private sector in the entire KP province (including the erstwhile FATA) and to develop a repository of up-to-date sector knowledge for the public sector, as well as to direct resources towards priority economic sectors identified in the growth strategies of KP and erstwhile FATA, such as tourism, agribusiness and marble. 20. The CERC component was added in 2020 at the request of the GoP to ensure a provision for an emergency response, should the need arise. Changes to the PDO were made to provide clarity and these did not impact the scope of the Project. The changes did not impact the PDO indicator for Component 2, since the original and the earlier revised target (US$10 million) in relation to generation of private sector investments continued to be met through the beneficiary contributions under the MGs and Upgradation grants. Changes were made to the PDO indicators to (i) include two new indicators, one related to the introduction of the new Component 4, and the other to reflect the participation of women; (ii) revise definitions to provide greater clarity; and (iii) revise some targets to align with the changed definitions. Changes were also made to some Intermediate Results Indicators (IRIs) to provide greater clarity in the definitions and to revise targets based on experience during implementation. . The targets for Component 1 were revised upward to support the Project’s scope to reach out also to more deserving SMEs and youth through the job restoration/creation opportunities. Between the original Project and the AF, the clients and the WB built on the lessons learned to gradually enhance the Project’s exposure and investments in P’s economy, given that E F was the first WB’s investment financing and the only MDTF intervention for the province’s mainstream private sector. II. OUTCOME A. RELEVANCE OF PDOs 21. The relevance of the PDO is High. At appraisal, the PDO was well-aligned with the priorities in the 2010 PCNA and the needs for reconstruction and restoration of livelihoods. The PDO was well aligned with Pillar 2 of the PCNA Page 13 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) which recommended restoration and creation of employment generating opportunities in farm and non-farm sectors, rehabilitation of enterprises and improving the investment and business climate for medium to long term economic growth and peace building. At the time of appraisal, the operation was fully aligned with the KP and erstwhile FATA growth strategies as well as the WB Country Partnership Strategy (CPS) for FY10-13, under Pillar 4 which aimed to ‘improving security and reducing the risk of conflict’; and more specifically ‘Increased Employment and Livelihood Opportunities in Conflict-Affected Areas’. 22. The PDO remains well-aligned with the current prevailing national and WB CPS priorities. The AF was aligned with the overarching goal of the WBG’s CPS for 2015-195 (that has been extended and currently remains in effect) to help Pakistan accelerate poverty reduction and build shared prosperity, with a specific focus on the crisis-affected regions of erstwhile FATA, KP, and Balochistan. Pillar 2 of the CPS focused on Private Sector Development, improving doing business, and investing in disaster and climate resilience. The streamlined PDO in 2020 remained relevant with the same CPS for 2015-2019 especially on Pillar 2 related to Private Sector Development. B. ACHIEVEMENT OF PDOs (EFFICACY) 23. A split rating is not applied because although the PDO was revised, this revision did not reduce the scope of the Project and the original as well as the revised targets were substantially achieved or exceeded. . As a result, the assessment of efficacy is based on achievement of the revised PDO. Achievements in regard to the PDO are discussed below under the three main areas (sub-objectives) specified in the PDO, namely, (i) creating sustainable employment opportunities; (ii) generating private sector investment; and (iii) developing selected economic sectors in KP. The overall outcome is based on the achievement of each of the targets specified for each of these sub-objectives. 24. The outcome-focused achievement of each objective is summarized and discussed in table 3. Supporting details regarding the realized results chain, including specific activities, outputs, intermediate results, and impacts that contributed to the achievement of the sub-objective are provided in Annex 1. Table 3: Outcome Focused Achievements for Objectives PDO and PDO Indicator (PDOI) Unit Baseline Original Revised Actual Achievement Target Target Sub-Objective 1: Creating Sustainable Employment Opportunities PDOI 1.1: Direct jobs restored number 0 8,000 13,500 14,941 Overachieved and created by the enterprises supported under the Project PDOI 1.2: Direct jobs restored number 0 none 315 865 Overachieved and created for women through the Project 5 The CPS for the Islamic Republic of Pakistan for FY2015–19 (Report No. 84645-PK), April 4, 2014. Page 14 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) PDOI 1.3: Number of SME number 0 850 2,500 3,042 Overachieved beneficiaries of the MGs of which at least 5% of the businesses are owned/managed by women entrepreneurs PDOI 1.4: MGs beneficiaries percentage 0 60% 75% 75% Achieved operational and productive at the completion of the Project Sub-Objective 2: Generating Private Sector Investment PDOI 2.1: Investment attracted US$ million 0 10 Dropped 0 Achieved. Although not tracked from the Diaspora and private after the indicator was dropped enterprises at the 2020 restructuring, there was an investment of at least US$10 million from private investors6 through KPBOIT (the institution that was supported by ERKP in establishment and capacity building) in addition to an estimated US$31 million under the Matching Grants. PDOI 2.2: Investment promotion number 0 2 5 5 Achieved authorities supported in KP province (number) Sub-Objective 3: Developing selected economic sectors in the Khyber Pakhtunkhwa Province PDOI 3.1: Tourist areas and number 0 none 50 59 Overachieved facilities supported through the Project Sub-Objective 1: Creating Sustainable Employment Opportunities in KP and FATA 25. Creating sustainable employment opportunities in KP and erstwhile FATA was a key outcome targeted under the Project, especially considering the fragility of the subregions, the negative impacts of militancy as well as the aftermath of the natural disasters. Employment opportunities were provided through the rehabilitation and upgrading of SMEs in the KP and erstwhile FATA under the SME component. In addition, the component enabled the rehabilitation and restoration of livelihoods in a region that had been for years subject to conflict, military occupancy, and violence, as well as internal displacements due to natural disasters. The MGs component was scaled-up under the AF Grant provided in 2017, as a result of opening of areas that were previously inaccessible and the return of a high number of temporary displaced persons (TDPs7) in KP and erstwhile FATA who needed 6Century Steels has invested more than US$10m at the Special Economic Zone (SEZ) Rashakai that is a project of KPEZDMC 7TDPs in this case mean individuals and families that returned from KP to their original residences in erstwhile FATA after peace was restored in those areas Page 15 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) financing to restore their livelihoods at a time when investment confidence in the area was at the lowest ebb due to the fragile situation. After 2017, the MGs component faced an increased demand and high participation and led to significant achievements that are shown in figure 2. Figure 2: SME component achievements8 Source: ERKP PMU 26. Achievement under this sub-objective is assessed as High. The targeted outcome of creating sustainable employment opportunities in KP and erstwhile FATA was achieved with the associated PDO level indicator targets being overachieved (16,425 direct jobs created and verified after Project closure in June 2022 against a target of 13,500 jobs). It is important to note that the number of 14,941 jobs created were accounted for as of December 2021, before Project closure (the final figure was 16,425). The high achievement can largely be attributed to the contribution of the relevant interventions, improved coordination among the implementing agencies and regular implementation support by the WB. Details are provided in Annex 1. 27. Achievement of Sub-Objective 1 was measured by four PDO level indicators (PDOIs) as follows: PDOI 1.1 - direct jobs restored and created by the enterprises supported under the Project; PDOI 1.2 -direct jobs restored and created for women through the Project; PDOI 1.3 - number of SME beneficiaries of the MGs of which at least 5 percent of the businesses are owned/managed by women entrepreneurs; and PDOI 1.4 - MGs beneficiaries operational and productive at the completion of the Project. 8The numbers shown in the chart were updated and verified after project closure in June 2022, hence the slight discrepancy with the actual numbers in the last filed results framework and ISR of November 2021. Page 16 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 28. The Project’s targets (both original and revised) in regard to creating sustainable employment opportunities were overachieved. The overachievement of these targets can largely be attributed to the Project interventions. The successful implementation of the MGs stimulated a high response from the SMEs to undertake rehabilitation and upgradation of their facilities. For PDOI 1.1, against the target of 13,500 direct jobs to be created, the actual number of direct jobs created was 14,941 as of December 2021. This number increased to 16,425 direct jobs after Project closure in June 2022 and was verified independently. Additionally, around 35,000 indirect jobs were also created that are not counted towards the target. The number of jobs refers to jobs restored and created by businesses which benefited from the matching grants. For PDOI 1.2, against the target of 315 direct jobs to be created for women, the actual number of jobs created was 865. For PDOI 1.3, against the target of 2,500 SME beneficiaries (at least 5 percent of whom are women), the actual number of beneficiaries was 3,042 (218 of the beneficiaries were women amounting to 7 percent). For PDOI 1.4, the target of 75% of the SME beneficiaries being operational and productive by the end of the Project was achieved and illustrates the Program’s additionality at the time of closing. 29. The high achievement of the PDO indicator targets was supported by high achievement of the related IRIs. In regard to Sub-Objective 1, these included (i) machinery pools/common facilities provided under the Project (the target for which was reduced from 11 to 6 in order to entertain more SMEs in queue for smaller grant amounts); (ii) SME rehabilitation support provided; (iii) SME upgradation support provided; and (iv) SMEs/clusters using the BDS support provided. Further details in regard to the contribution of the Project interventions to the successful achievement of Sub-Objective 1 are provided in Annex 1. Sub-Objective 2: Generating Private Sector Investment in KP and FATA 30. For the success of Component 1 and its matching grants and upgradation grants activities, it was essential that adequate private sector investment was generated to provide the beneficiaries’ share. Under the original Project, the focus was on attracting this through contributions from Diaspora and migrant workers, in the context of the post crisis related to the floods and the needs for reconstruction and rehabilitation. However, the expectations of attracting investments from diaspora proved to be challenging to materialize in reality, and the indicator was revised at the 2017 restructuring to include investment from private enterprises including under the MG scheme. The indicator was later dropped under the 2020 restructuring and no longer tracked under the Results Framework. The study on Diaspora Bond and the Investment Mobilization plans prepared under the Component 2 were widely discussed with the federal Ministry of Finance, the Central Bank (State Bank of Pakistan), Pakistan Remittances Initiative (PRI), domestic public and private sector commercial and investment banks and the international stakeholders including the Diaspora, foreign investors and the diplomatic missions in Islamabad, Karachi and Dubai. During an international investment road show held in 2015 through ERKP, the GoKP leveraged this momentum and signed 18 Letters of Intent with investors in Dubai for feasible projects in tourism and energy sectors, out of which two were materialized for the tourism sector of KP exceeding the target for this indicator but there were issues in directly linking the investment to the project’s effort as a number of government entities were involved in it. 31. Meanwhile, there was a high response from the original Project beneficiaries and the return of TDPs who needed new revenue generating opportunities during the Additional Financing in 2017. The matching grants allowed to respond to this need and necessitated beneficiaries’ financial contributions. Page 17 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 32. Achievement under this sub-objective is assessed as Substantial. The investment target under the original indicator (investments from diaspora) and the revised indicator (investments from diaspora and private enterprises, including under Matching Grants) under the 2017 restructuring was US$10 million. Under the Project, the investment from private enterprises includes (i) estimated investments made under the Matching Grants (PKR 4 billion or US$31.61 million) and (ii) an investment of US$10 million (Century Steel at SEZ Rashakai, Nowshera) from private investors. , On this basis, the investments from private investors thus substantially exceeded the target of US$10 million. For PDOI 2.2, the target of supporting five investment promotion authorities in the KP province was achieved. Further details in regard to the contributions of the Project interventions under Sub- Objective 2 are provided in Annex 1. 33. The achievement of the PDO indicator targets was supported by the achievement of the related IRIs. In regard to Sub-Objective 2, these included: (i) web tools (Reconnect Pakistan) for diaspora were developed and operational; and (ii) diaspora outreach program was implemented. Further details in regard to the contribution of the Project interventions to the achievement of Sub-Objective 2 are provided in Annex 1. Sub-Objective 3: Developing Selected Economic Sectors in KP 34. During the implementation of the Project, it was assessed that there was substantial potential for the economic development of KP and erstwhile FATA to be enhanced further by providing support to selected economic sectors with significant potential for early returns. The sectors identified as having the highest potential were tourism, agribusiness, and marble production. Under the AF in 2017, the TA and financial resources were provided to lay the institutional foundation to support the development of the selected economic sectors. 35. Achievement under this sub-objective is assessed as Substantial. The economic sectors identified as having the most potential for realizing benefits were tourism, agribusiness, and marble production. During implementation, it was also noted that domestic tourism in the KP region was picking up, as highlighted in Box 1 below. The GoKP had also declared tourism as a priority sector; accordingly, ERKP supported the government in the initial sector studies and assessments for the tourism sector of KP. Subsequently, the PDO indicator’s measurement under this sub-objective focused on the tourism sector, while TA and matching grants were provided for agribusiness and all other sectors. In regard to the single PDO indicator (PDOI 3.1) under this sub-objective, against the target of 50 tourist areas/facilities to be supported under the Project, the target was overachieved as the actual number of areas supported was 59. 36. The achievement of the PDO indicator target was supported by the achievement of the related IRIs. Regarding Sub-Objective 3, these included: (i) officials of the implementing agencies (IEs) and relevant departments of KP and erstwhile FATA receive training; (ii) scalable investment projects and activities identified in the competitive sectors of KP and erstwhile FATA; (iii) individuals receiving training in the tourism sector; and (iv) individuals (including women) receiving training in the pine nuts value chain. Further details in regard to the contribution of the Project interventions to the successful achievement of Sub-Objective 3 are provided in Annex 1. Page 18 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Box 1: ERKP Contributions regarding the tourism sector in KP Tourism is an important source of economic benefits for KP that are estimated at US$304 million for the tourist destinations of Galiyat, Naran, Kaghan and Kumrat alone. While the areas had significant potential for further growth of tourism, ensuring reliable data on the tourism value chain was essential for facilitating policy development and planning destination development of sites experiencing excessive tourist footfall. The ERKP provided financing and TA for capacity-building to the relevant authorities, including provision of systems, equipment and training to facilitate collection and processing of relevant information. Key areas of support included: • First ever KP Tourism Sector Analysis conducted in 2018 focused on existing tourist destinations of KP including Kalam, Kumrat, Naran and Galiyat which laid foundation for tourism site development in a structured manner. • Capacity-building of the P’s Department of Tourism (DoT), Galiyat Development Authority (GDA), Kaghan Development Authority (KGDA), Tehsil Municipal Authority (TMA) of Swat and TMA of Chitral. • Improved destination planning through preparation of Destination Investment and Management Plans (DIMPS) and Visitors’ Management Plans ( MPs). • Matching grants for 173 tourism SMEs, including 105 for hotels and gustehouses,47 for restaurants,17 for handicraft producing artisans, and 4 for tour operators. • Training of 50 tour guides and operators in professional hospitality and tour management. • Renovation of 15 guesthouses and tourist information centers in Galiyat (Abbottabad district of KP) leading to 100 percent increase in revenue through room bookings. • Support for eco-tourism through supply of needed equipment and facilities including prefabricated public toilets; garbage collection and composting equipment; wheel loaders and excavators; and tourist coaches and sightseeing carts for tourist transport. • Renovation and operationalization of youth hostel in Batakundi, Naran (Mansehra district of KP) for young tourists from universities and colleges for study tours. • Development of tourism management information system (TMIS) including mobile applications • Installation of traffic counting systems in Galiyat to support better assessment of travel patterns and traffic count. • Capacity enhancement of Directorate of Archeology and Museum (DoAM), installation of solar system, audio tour guides for Peshawar Museum, and establishment of a specialized digital lab at the Directorate to support the conservation efforts. The waste management equipment supplied under the ERKP to GDA, KGDA, TMA Swat, TMA Chitral for Kalash and Kumrat Development Authority (KDA) significantly supported the authorities in coping with and mitigating the impacts of the adverse weather-related events of heavy snowfall in 2021 and severe floods in 2022. Importantly, the initiatives and interventions under the ERKP laid a foundation for better assessment of priority needs and further tourism sector development that are now being pursued under the IDA-funded Khyber Pakhtunkhwa Integrated Tourism Development Project (KITE) P163562 which was approved in 2019 and is now under implementation. Justification of Overall Efficacy Rating Page 19 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 37. The overall efficacy of the Project is assessed as Substantial. The efficacy of the revised PDO “to support the GoP in creating sustainable employment opportunities, and developing the selected economic sectors in KP” was assessed based on the achievement of three sub-objectives as follows: - The efficacy of Sub-Objective 1 (creating sustainable employment opportunities in KP and FATA) is assessed as High based on overachievement or achievement of the relevant PDO indicators, supported by achievement of the targets for the related IRIs. This was achieved despite of continued challenges including security issues, floods and COVID-19 - The efficacy of Sub-Objective 2 (generating private sector investment) is assessed as Substantial; although the original PDO indicator was revised at a restructuring in 2017 and dropped at the 2020 restructuring, , the amount of private sector investment generated through the MG exceeded the target (US$10 million) under the original indicator. The targets for the related IRIs were achieved as well. These achievements contributed importantly to related outcomes including providing lifeline support to fragile SMEs and creating job opportunities for the otherwise distracted and disappointed youth especially in erstwhile FATA. - The efficacy of Sub-Objective 3 (developing selected economic sectors in KP) was assessed as Substantial based on the achievement of the relevant PDO indicator related to the tourism sector and achievement of the targets for the related IRIs. - In addition to the above, the implementation of ERKP faced multiple challenges and did not have the luxury to wait for peace to return to the region. Instead, it was WB’s first jobs and private sector development intervention for KP which too was launched in the middle of a full-blown conflict along the north west border areas of Pakistan. The conflict’s impact was felt throughout the KP province which made it difficult to implement the activities in the relatively stable districts as well. The areas most impacted by unrest (erstwhile FATA and now called the Newly Merged Districts) were inaccessible during the original tenure of the project until 2016. The businesses from these areas were supported during the Additional Financing (AF) of ERKP which became effective in 2017. - Furthermore, a major change in governance structure was made with the merger of FATA with KP having a direct impact on management structure and systems developed for implementation of the project. The WB and the management of Newly Merged Districts (NMDs) agreed on a joint implementation mechanism explained later in this document. The swift decision was respected by all stakeholders and helped further consolidate the implementation modalities and achievement of results in the NMDs. - Based thereon, the overall efficacy is assessed as Substantial. C. EFFICIENCY 38. Economic and Financial Efficiency: At appraisal, an economic efficiency analysis was carried out including estimation of two economic indicators – Economic Internal Rate of Return (EIRR) and Economic Net Present Value (ENPV). The analysis was based on a number of assumptions as to the volume and extent of benefits that would be realized from the investments under the different components. The estimates in the PAD indicate that, for the overall Project, the EIRR was estimated at 44.1 percent and the ENPV (at a discount rate of 12 percent) at US$ 32.57 million. Under the 2017 AF, the economic costs-benefits were estimated for the additional investment planned under Component 1, indicating an EIRR of 75.6 percent and an ENPV of US$ 19.46 million. The specific assumptions underlying these results are indicated in Annex 4. The resulting EIRR was substantially higher than that estimated at appraisal. Page 20 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 39. For the post-completion analysis, a quantitative analysis is constrained by the limitations of information regarding two of the three components (generating private sector investment from the diaspora and limited information from other selected economic sectors than the tourism sector). The financial efficiency analysis was undertaken and focused on the first component (creating sustainable employment opportunities). This resulted in creation of a total of 51,425 jobs (direct and indirect). In regard to cost-effectiveness, relating the total job creation to the estimated total investment (matching grants and own investment) of US$54 million under this component, the cost per job created is estimated at about US$1,050 . Preliminary comparisons indicate that this compares well with cost-effectiveness experience from other countries (although such comparisons are affected also by the different environments prevailing in the countries). . A detailed financial efficiency analysis was carried out for a representative sample of SMEs supported through MGs (details of the analysis are provided in Annex 4) and a survey conducted from January to March 2023. The overall sample included 157 SMEs – the main business sectors included marble production; food and agribusiness; artisanal products; hospitality; and textiles and garments. The financial indicators used are the Profitability Ratio (net profit divided by sales revenues) and the Payback Period (number of years required to recover the initial investment). Results are summarized in the following table: Profitability Ratio (%) Payback Period (years) Net Present Value (discount rate of 12%) 33% to 50% 2 to 3.5 years US$ 2.11 million 40. The NPV estimated for the sample of SMEs can be taken as a proxy for the net economic benefits generated by the SMEs in the sample. Extrapolating the results from the sample to the overall population of SMEs, the net economic benefits under the SME component (the largest component under the Project accounting for over 50 percent of the Project cost) can be assessed to be Substantial. 41. On a qualitative basis, the Project had significant economic benefits through the growth of employment and incomes and the impacts on the lives of the population in KP and erstwhile FATA. The Project also resulted in institutional strengthening of key agencies in KP and erstwhile FATA thereby strengthening the foundations for future economic growth and development in the regions. Implementation Efficiency: 42. The Project cost at completion was US$39 million, in line with the appraised Project cost of US$ 20 million for the original Project which was increased to US$ 39 million after the AF in 2017. Regarding Project duration, the originally planned period was 46 months (3.8 years). The actual Project duration was 130 months (10.8 years). Between 2011 and 2016, four extensions of the closing date were made to allow implementation of the expanded range of activities after the 2017 Additional Financing and completion of some activities that were adversely impacted by the conflict-related situation. Two additional extensions of the closing date were made, the first in 2017 to allow for completion of the substantially increased scope and activities under the AF, and the second in 2020 to allow completion of Project activities adversely affected by the COVID 19 Pandemic in 2020-2022. Given the context and environment in which the Project was implemented, the increase in the Project’s duration was understandable and justified, it was agreed with the MDTF Steering Committee and only done in response to the request of GoP and GoKP. Assessment of Efficiency Page 21 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 43. Based on the foregoing, economic efficiency is assessed as Substantial and implementation efficiency as Substantial. The overall efficiency is assessed as Substantial. D. JUSTIFICATION OF OVERALL OUTCOME RATINGS 44. The rating of the overall outcome is based on the ratings for (i) relevance of PDOs; (ii) efficacy; and (iii) efficiency. As discussed earlier, Relevance of PDOs is rated High; Efficacy is rated Substantial; and Efficiency is rated Substantial. Based on the foregoing, in line with the relevant OPCS guidelines, the Project’s overall outcome is rated Satisfactory. E. OTHER OUTCOMES AND IMPACTS 45. In addition to the agreed outcomes and impact, the ERKP had some other intended and unintended outcomes that are worth mentioning. 46. Poverty reduction and reducing youth vulnerability in the region: During workshops and stakeholders’ engagements conducted by the Third Party Monitoring Agent (TPMA)9, WB supervision mission teams and subsequently the ICR task team, beneficiaries shared how the Project contributed to restoring their livelihoods and catalyzing revenue generating opportunities to help them out of poverty. In addition, youth in the target area, especially the Merged Areas of KP and Swat were highly vulnerable to active militancy and could have been an easy prey for militant insurgencies. 47. Gender: The Project contributed to empowering women in KP and erstwhile FATA. Women-owned businesses were given a priority and were encouraged to apply to the matching grants both in KP and erstwhile FATA. Over the years, the participation of women increased, and the direct number of jobs restored and created for women through the Project was 865 in total. However, women participation in erstwhile FATA was limited because this area borders Afghanistan, is highly conservative and has strict sociocultural norms. A total of 500 women were trained on pine-nut harvesting and collection and also in skills workshop for the embroidery clusters and marble mosaic. Furthermore, ERKP also sponsored upgradation of Women Technical and Vocational centers at Gulbahar and Hayatabad at Peshawar district and established a Beautician Therapy Lab at Chakdara (Lower Dir district) that is supporting training of women on regular basis. 48. Financial Inclusion: ERKP mandated that transfer of funds to beneficiaries shall only be made directly into the banking accounts (online). This resulted in financial inclusion and curbed chances of corruption that usually take place at the time of cash transfer or handing over of cheques. It shall be noted that many beneficiaries from the erstwhile FATA never had a bank account but were introduced to the banking system due to this project. 49. Institutional strengthening and sustainability: ERKP’s support to key institutions in KP included TA to the KP Board of Investment (KP-BoIT) and KP Special Economic Zone Authority (KP-SEZA) through the hiring of specialized consultants, as well as the provision of furniture and equipment. These institutions are now regularly funded by the GoKP. A special ‘Investment limate Support’ unit was established at the P BoIT to facilitate the domestic and international investors in liaison with the PPP unit of KP and relevant departmental nodes. It is 9 Associates in Development (AiD) was engaged as TPMA by MDTF Page 22 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) still functional and supports the line ministries with investment mobilization. The support provided to tourism sector through technical studies, equipment and machinery including traffic counters, waste management equipment and training of private as well as public sector stakeholders helped in paving way for strengthening the Department of Tourism and making it a valuable implementing agency for the ongoing IDA funded KITE Project. 50. Mobilizing private sector financing: ERKP was the first initiative of its kind where the concept of matching grants was successfully implemented by the WB in Pakistan and resulted in mobilizing a sizable contribution from the private sector. By the closing of the Project, private investment from SMEs in the matching grants was estimated at about PKR 4 billion (US$31.61 million equivalent), thus exceeding the original target of US$10 million. The GoKP has replicated the model of matching grant in most of its initiatives to support private businesses. SMEDA has also launched a Project using the same model awarding matching grants to SMEs at the national level. III. KEY FACTORS THAT AFFECTED PREPARATION, IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 51. Sound analytical work and project justification: Following the disaster in KP in 2010, a thorough PCNA exercise was undertaken to assess the situation in KP & erstwhile FATA. The PCNA exercise provided clear recommendations on reconstruction/rehabilitation needs as well as support for affected persons and SMEs. This critical analytical work as well as the KP and erstwhile FATA growth strategies were used to prepare a response to the disaster and design the ERKP. As a result, the Project was fully aligned with governments needs and progress was reviewed regularly through the MDTF Steering Committee to ensure implementation was on track to achieve objectives. 52. Donors’ support through MDTF: A strong donor coalition for reconstruction allowed the creation of the MDTF to support the entire region. The donors pledged to implement the PCNA ‘s recommendations in the region through the establishment of the MDTF institutional framework, with a Steering Committee. This strong support facilitated recording and communication of Project results at various internal and external platforms, combined with donors’ regular visits to Project sites and interactions with GoKP, PMU and ERKP beneficiaries. 53. Readiness for implementation: Program design was built on extensive dialogue and intensive consultations with TDPs, the private sector and concerned departments during preparation. The main implementing agency for Component 1 (SME Development) was SMEDA by way of its Memorandum of Understanding (MoU) with the GoKP, as the agency already possessed inherent capacity and was represented in KP & erstwhile FATA, while the Industries, Commerce, and Technical Education Department (ICTE) took on the responsibility of serving as the Project’s implementation entity for other components and liaising with other concerned departments. The Project Operation Manual (POM) was prepared to ensure readiness for implementation. 54. Strong government commitment and support for KP’s reconstruction: Developed in the aftermath of the 2010 disaster, the Project was designed to complement other reconstruction efforts undertaken by the GoKP. Later, the Project was expanded to include activities that would have a meaningful impact on economic recovery and Page 23 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) the growth on selected sectors in the province, while also ensuring it provided a platform to continuously address new economic challenges in the provinces through identification of feasible investments. B. KEY FACTORS DURING IMPLEMENTATION Factors subject to the control of government and/or implementing entities: 55. Continued commitment from GoKP and WB through AF: Throughout its implementation, the GoP’s and GoKP’s ownership and commitment at the highest levels were critical. Relevant government departments, including the Additional Chief Secretary (ACS) KP, Secretary Planning & Development Department (P&DD), and representatives of other relevant line departments were members of MDTF and reviewed progress at every stage. While implementation started slowly, the Project was recognized as relevant and needed more time for all the rehabilitations and reconstruction as well as other objectives to be achieved. 56. Impact of the merger of the FATA with the KP province: After the original Project effectiveness, the Project was being implemented by two separate project management units (PMUs): the KP-PMU and the FATA- PMU. Implementation pace was uneven among both PMUs but was progressing well till the merger of FATA (which became NMDs) with KP in 2018. The implementation arrangements for relevant MDTF projects had to be revised including, in case of ERKP, (i) combining PMUs and the two Project Steering Committees (PSCs) into one. These changes were challenging to implement as there was resistance from the project staff however these were resolved by the PSC. Ultimately, this led to a positive change and a more integrated PMU was able to lead the implementation successfully and achieved the PDO by closing date. Factors subject to the control of the WB and development Partners 57. Development of MDTF and IDA Pipeline: The MDTF was a powerful instrument used by development partners for a strategic and longstanding successful engagement in KP. It was due to the investments made in the tourism and industrial sectors of the province through the ERKF and its AF, that the WB received the requests for IDA financing for KITE and Khyber Pass Economic Corridor (KPEC)10 Projects which are now being implemented in collaboration between the Finance, Competitiveness and Innovation (FCI) and Transport Global Practices (GPs) of the WB. The concept of the matching grants was also taken up and integrated within the design of the MDTF financed Balochistan Livelihoods and Entrepreneurship Project (BLEP). The three projects became effective within the life of ERKP and KITE project continued to receive TA support through the ERKP until the closure of ERKP. Factors outside the control of government, implementing entities and the WB 58. COVID-19: The pandemic affected the Project’s implementation, with a slowdown in economic activities, especially during the shutdowns. owever, as part of the WB’s portfolio-wide response to the pandemic in KP, the Project was restructured in 2020 to reallocate funding among components, create a CERC component and allow the provision of Personal Protective Equipment (PPE) and ventilators to the populations and health facilities in need. ERKP was the first responder in KP among all the WB projects to urgently procure 55 ventilators, surgical masks and other lifesaving hospital equipment worth US$ 1.97 M (PKR. 315.8 M) for the Health Department of the province (details of supplies distributed and mapping across the province in Annex 6). The system which was used for accounting for the medical supplies procured through the ERKP, was replicated by other WB projects which subsequently initiated the COVID-19 response in the province. 10 KPEC (P159577) was approved on 14 June 2018 Page 24 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) 59. M&E Design: The design of the M&E system considered the initial results framework prepared at appraisal. The Results Framework (RF) adequately reflected the foreseen results chain, and the selected PDO indicators and IRIs were generally relevant and measurable. However, in regard to Sub-objective 3 (Developing Selected Economic Sectors in KP), the PDO indicator (Tourist Areas and Facilities Supported Under the Project), was more of an output indicator than an outcome indicator. The design of the system was based on a participatory approach between the task team and the government project preparation joint team in KP and erstwhile FATA. The PMUs in KP and erstwhile FATA were responsible for monitoring the overall Project in terms of inputs, activities carried out, and the resulting outputs. The Project Unit (PU) under SMEDA was to be responsible for monitoring the MGs. The MGs selection method was implemented by calls for proposals/applications which were widely communicated in the province, including in the erstwhile FATA. Once the applications were received, they were analyzed and approved/ rejected following a clear grant cycle (see grant cycle detail in Annex 6). A Management Information System (MIS) was developed and launched specifically for the PU to capture all data and results. An important feature of the design was the use of TPMA, to enable access through the agent to security challenged areas. Through customized surveys and careful selection of sample comprising matching grants beneficiaries, the TPMA enabled independent verification and validation of various indicators regarding the Project’s results including beneficiary satisfaction and operational status of SMEs on quarterly basis. The PMUs and the PU employed M&E specialists who served as the focal points in the collection, recording, and analysis of relevant data. Go P’s dedicated Directorate for Monitoring and Evaluation also conducted robust assessment of beneficiary SMEs before awarding the matching grants to the SMEs which was usually done in two tranches. 60. M&E Implementation: During implementation, some changes were made to the RF, including both PDO indicators and IRIs, to provide greater clarity and to reflect coverage of the expanded scope of the Project after the AF in 2017. For instance, two new indicators were added, and definitions and some targets for other indicators were revised upwards to match the Project ambition to create additional jobs and strengthen specific economic sectors of the province. For instance, the number of direct and indirect jobs restored/created was measured by the SMEDA’s office as well as Industries Department of KP. The data collected in regard to the project’s results were verified by the TPMA. 61. M&E Utilization: The M&E system was utilized to track progress in achievement of the targeted results and outputs, and for complying with the reporting requirements under the Project. The system helped in identifying implementation related issues and the need for remedial actions where relevant. The M&E system was also used to facilitate discussions between the implementing partners and assess the likelihood of achieving the PDO and facilitate decision making. Justification of Overall Rating of Quality of M&E 62. The overall quality of the Project’s M E system is rated Substantial. Page 25 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 63. The original project was processed as an emergency operation under OP 8.0, and an Environmental and Social Screening and Assessment Framework (ESSAF; the umbrella safeguards instrument applicable to all MDTF projects) was prepared. Subsequently, an Environmental and Social Management Plan (ESMP) specific to ERKF was prepared and disclosed. The ESMP provided screening and mitigation checklists for “brown” and “green” sector of SMEs considered for grants financing. COVID 19 Infection Prevention and Control (IPC) measures were also applied to the project. During implementation, sensitization and training on relevant E&S as well as Occupational Health and Safety (OHS) requirements were conducted. Thus, the Environmental Safeguard performance is rated Satisfactory. 64. Environmental: Around 86 percent SMEs had fully complied with E&S plus OHS/COVID-19 requirements during (Oct 2020-Sep 2021). The remaining SMEs that were lagging in compliance of Safeguards requirements were sensitized, and training was given on how to better comply with the E&S, OHS as well as COVID-19 Infection Prevention and Control (IPC) requirements of the project and the country regulations. Time was set for required corrective actions and later the SMEs were monitored and found most of them to have addressed the E&S implementation shortcomings. 65. Social: The Project E&S risk rating remained category B throughout its implementation, and the Project has been successfully completed with a Satisfactory E&S performance rating, with no pending E&S deliverables or tasks at Project closure. The ESMP described monitoring requirements, capacity building arrangements, and a grievance redress mechanism (GRM). SMEDA did not originally have safeguards capacity, but upon WB advice, it hired an E&S Consultant after which E&S screenings, monitoring and reporting improved. 66. The ESMP remained valid for Component 1 of the AF since the nature and extent of AF activities remained the same as for the original project. The GRM was activated since inception and publicized among project stakeholders. It did not receive any complaints, but the Environment and Safeguards consultants of the Project made field visits regularly to check compliance of ESMP by the beneficiaries. A positive effort to be noted is the Project’s outreach efforts to transgender-owned SMEs, though this did not pan out due to these business owners not meeting grant criteria. The safeguards instruments for KITE project were successfully prepared and NOL provided by the WB. 67. The primary E&S lessons learned during the Project are that (i) the hiring of a dedicated E&S staff/Consultant in the PMU and PU proved instrumental in successful implementation of its ESMP, (ii) ensuring regular monitoring of grantees using an E&S monitoring checklist ensured adherence to ESMP and timely corrective measures, (iii) frequent safeguard trainings and awareness programs for PU SMEDA staff on E&S requirements ensured field staff could provide necessary support, and lastly (iv) regular WB supervision ensured E&S requirements were provided the requisite attention by PU SMEDA. Page 26 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Fiduciary 68. Financial Management: The designed FM arrangements for the project were implemented successfully. The Project’s FM performance remained ‘Satisfactory’ through most of the implementation phase and the Project closed with a ‘Satisfactory’ FM performance. Between 2017 and 2018, FM performance was assessed as ‘Moderately Satisfactory’ due to a slowing down of activities due to the Go P’s internal management issues and merger with KP. Throughout the implementation period, the FM teams in both PMUs and PU remained adequately staffed with experienced professionals. Sufficient budgetary resources were made available on an annual basis to enable execution of the project activities. Funds were transferred to the Designated Accounts on a timely basis based on the cash forecasts submitted by both PMUs and PU. The Project complied with the internal control framework (including the Financial Management Manual) and the internal control environment was assessed as adequate throughout the project activities. 69. During 2017 and 2018, delays in payments to matching grant beneficiaries were noted, which were resolved with digital payments solutions. The Project’s financial management record was noted as recent and up to date. Bank books were being maintained on a cash-basis of accounting, and updated regularly with Pakistani Rupee and US Dollar entries, vouchers were being prepared for each transaction, with supporting documentation annexed, and the transactions were traceable to bank books and IFRs. The required acceptable financial reports, including IFRs and Audited Financial Statements, were submitted to the Bank within the timelines stipulated in the legal agreements: the IFRs for the period ended June 2022 and Audit Report for the FY 2021-22 were the latest submissions. External audits of the project were conducted by the Auditor General of Pakistan, which was an arrangement acceptable to the Bank. The auditors expressed unmodified clean opinions in the audit reports of all the Financial Years (FY) during the implementation period. The Management Letters also highlighted various audit observations, none of which pointed to any material internal control weaknesses or serious accountability issues. The majority of the audit observations have been resolved through Departmental Accounts Committee (DAC) and Provincial Accounts Committee (PAC) meetings – the DAC and PAC are the fora to discuss and resolve audit observations. 70. Procurement: The Procurement Performance Rating assigned for the project on closing was 'Moderately Satisfactory' as the procurement process for most of the activities was completed and sample post review cases were overall compliant with few discrepancies indicated in the procurement post review report for FY 22. It was observed that the extension in delivery time for the contracts were awarded and the contract closing date for some of the contracts coincide with the project closing date which was a risk on part of the implementation agency as any slippage or delay in delivery could have led to financial obligations on part of the implementation agency from government exchequer. Notwithstanding the above, most of the procurements were completed without Fraud and Corruption concerns and were in general compliant with the overall process. C. BANK PERFORMANCE 71. Quality at Entry: The Project was prepared as an emergency response at the request of the GoP. Project preparation drew upon the findings of the DNA and the PCNA that preceded the Project, following years of active militant activities, security issues in the region and the 2010 floods. The establishment of the MDTF was a key factor in the preparation of the Project. The design and preparation of the Project considered the institutional strengthening and capacity building needs of the key implementing agencies involved in the Page 27 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Project. Arrangements for potential beneficiary outreach were given due attention, especially during consultations with SMEs. The Project’s M E system was adequately designed. The implementation risks were well recognized given the fragile environment and the security concerns around the KP and especially the erstwhile FATA and mitigating measures were proposed. The planned safeguards and fiduciary arrangements were adequate. 72. Quality of Supervision: During the implementation period of nearly 11 years, the supervision team carried out a total of 24 implementation support missions. The supervision teams were adequately staffed with safeguards and fiduciary specialists. There were only two Task Team Leaders (TTLs) during the implementation period, which contributed to stability in WB continued supervision and monitoring. The Implementation Status and Results Reports (ISRs) were filed in a timely manner and the reporting was candid. The supervision teams were proactive in following project progress and bringing necessary actions to the attention of the agencies and authorities concerned. 73. The AF was based on high response to the matching grants from the original Project as well as the need to continue to restore economic activity in previously inaccessible areas of erstwhile FATA. Required modifications in project scope and the RF were made during project restructurings which included an AF in 2017 and subsequent adjustments to the RF in 2020, to clarify indicators and add indicators related to COVID-19 activities. The supervision team provided support as needed to the PMUs and the PU to reinforce their capacity for project implementation. The Project’s implementation period of nearly 11 years was substantially longer than planned. The PMU costs over that period were high (24%) but, as discussed in Section 4 on Outcome, this was understandable in the fragile environment, importance of reaching out to deserving enterprises in remote locations, and the length of time during which the project was implemented. Justification of Overall Rating of Bank Performance 74. Based on the foregoing, Bank performance regarding quality at entry as well as supervision was assessed as Satisfactory, leading to an overall rating of Bank performance as Satisfactory. D. RISK TO DEVELOPMENT OUTCOME 75. Policy Risk: Sustainability of the improvements initiated under the Project will depend upon the willingness and ability of the GoP and the regional governments in KP to continue to implement the policies and reforms initiated under the Project. This will be governed by the prevailing political situation in future. 76. Institutional Risk: To sustain the gains made under the Project, the key institutions, and agencies such as the ICTE, the DoT and KP BoIT have further internalized and already executed efficiency improvements and responsiveness initiated under the Project. 77. Financial Risk: Access to adequate financing from financial institutions will be essential for the SMEs to maintain and further expand their businesses. This aspect will need continuing attention from the authorities. 78. Security Risk: While the GoP’s actions to contain insurgency and militant activities have been successful to date, the risk remains that a revival of such activities could take place, with adverse impacts on the sustainability Page 28 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) of the Project’s outcomes in P and erstwhile FATA. V. LESSONS AND RECOMMENDATIONS 79. Project implementation in a fragile environment takes longer than in normal settings: In a conflict-affected and post-crisis environment, mitigation measures and flexibility are key for the project to achieve its objectives. The project was implemented for a period of 11 years. This was due to a slow pace of MDTF’s implementation at the beginning, which was true for all projects. Later, the AF, which was justified by the continued high demand from SMEs including SMEs from the areas that were previously inaccessible in the North-West to avail the matching grants to restore enterprises quickly and create jobs, was implemented successfully but required additional time to achieve the PDO. Reducing the vulnerability and improving livelihoods for women and youth in KP and erstwhile FATA as well as paving the way for the development of selected economic sectors in the project area needed four additional restructurings to adjust to the evolving needs of the targeted beneficiaries. 80. Contrary to the reputation of matching grants which are normally considered the least viable financing mechanism, the ERKP managed to deploy these effectively in a conflict scenario. Research on MG has produced mixed findings. A recent study states that MG might not be the last resort in SME financing but does imply that MG when designed right in exceptional circumstances, can be successful in achieving the intended results. A successful grant program facilitates targeting of investment to priority sectors, accurate appraisal, transparency of the selection process without compromising quality, a robust M&E system to ensure effective utilization of the grants; and a GRM11. ERKP incidentally had these features integrated in its MG activities. The fiduciary controls, thorough vetting of applicants, strong adherence to the eligibility criteria for awarding grants, and hand holding of the implementation partners and beneficiary SMEs contributed to the success of MG and the project itself. These proved to be a highly appropriate instrument in a fragile and conflict situation, where the conventional market for financial instruments had failed or never existed. The project mandated the beneficiary SMEs to open formal business accounts which was previously not practiced due to the high level of informality in P’s economy. The project thus contributed towards business registration, financial inclusion and financial literacy in an otherwise undocumented economy especially in the remote districts of KP and NMDs (erstwhile FATA). Most beneficiaries transacted through formal banking channels for the first time. 81. Flexibility and adaptability in implementing the matching grants are important for it to be successful. The matching grants selection process was clear but the high demand from SMEs led to adjust the POM and the application process in order to respond to the needs. For example, right after the AF went into effectiveness, the first call for applications from SMEDA received more than 10,000 applications at the same time. The PMU and SMEDA had to design a simplified approach for applications’ screening and establish a strong MIS gathering all financial and ground data to help in quicker processing of applications as well as monitoring. In addition, the strong grievance mechanism helped the project to address issues brought forward by rejected applicants or slow disbursements complaints from SMEs. 82. Extensive stakeholder and beneficiary consultations preceding and during project implementation are key for projects in fragile context. The objectives and modalities of the project were discussed through a series of meetings with concerned representatives of the Government and affected persons to tailor the project’s 11A 2023 paper (‘Matching Grants are the Worst Form of SME Assistance – Except for All Others (A evisitation)’ by David A. Phillips). Page 29 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) response to quickly restore jobs. In addition, outreach and informational activities continued during project implementation, especially after FATA was merged with KP and subsequently, the FATA PMU had to be integrated under the umbrella of KP to have a combined PMU implementing the project. 83. Sustained government commitment and ownership at the provincial level over the years helped to overcome initial low capacity and weaknesses in the key implementing agencies. Successful implementation of the Project was built on considerable technical assistance and financial support provided under the Project to the key implementing agencies in KP and erstwhile FATA. E P’s support to key institutions in P included technical assistance to the KP-BoIT and KP-SEZA through the hiring of specialized consultants, as well as the ICTE and DoT. These institutions are now fully capacitated, able to prepare their own Annual Development Plans (ADPs) and are regularly funded by the GoKP. 84. While the Project was successful in meeting the targets set for direct jobs created by/for women under the matching grants, the overall level of women’s participation remained low especially in the erstwhile FATA. Knowing the MD’s strict sociocultural norms, in future projects, special efforts need to be made to reach out to women in that area and offer solutions which will allow them to create and operate businesses from their homes. Such practical solutions could include training for digital & financial literacy. The use of digital devices would help them showcase their home-based businesses and participate in creating revenues generating activities without breaking social norms. Establishing a special business park or an emporium for women entrepreneurs with all facilities for child-care and secured transport could also be useful for exhibitions and sales points and help increase their participation to the labor market. 85. The MDTF, GoKP and WB invested resources and time to document, showcase and disseminate the results achieved by ERKP throughout its nearly 11 years of implementation. This required significant planning, interaction with the PMUs and beneficiaries and engaging the services of internal WB, GoKP and private sector experts to produce diverse and appealing content in various forms. This included power point, digital information graphs, documentaries, blogs, press and media releases, written and video interviews of the officials and beneficiaries, and printing of newsletters at regular intervals. The publicity of results and experiences caught the attention of WB and IFC teams, development partners, GoKP and GoP authorities who benefitted from the project’s journey and used this readily available material to inform their respective interventions. . Page 30 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Number of direct jobs created by the enterprises supported through the project Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Direct jobs restored and Number 0.00 8,000.00 13,500.00 14,941.00 created by the enterprises supported through the 11-Oct-2011 31-Dec-2021 30-Nov-2021 Project. Direct jobs restored and Number 0.00 0.00 315.00 865.00 created for women through the Project Comments (achievements against targets): Indicator disaggregated during AF to regular jobs created for women through the project, as such did not have an original target at project approval in 2011. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Matching grants beneficiaries Percentage 0.00 60.00 75.00 75.00 Page 31 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) operational and productive at 11-Oct-2011 31-Dec-2021 30-Nov-2021 the completion of the Project. Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion SME beneficiaries of the Number 0.00 850.00 2,500.00 3,042.00 MGs, of which at least 5 percent are owned/managed 11-Oct-2011 31-Dec-2021 30-Nov-2021 by women entrepreneurs. Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Tourist facilities and sites Number 0.00 0.00 50.00 59.00 supported through the project 11-Oct-2011 31-Dec-2021 30-Nov-2021 Comments (achievements against targets): Indicator introduced during AF and as such, did not have an original target at the project approval in 2011. Page 32 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Investment promotion Number 2.00 0.00 5.00 5.00 authorities supported in KP province 28-Feb-2020 31-Dec-2021 28-Feb-2020 30-Nov-2021 Comments (achievements against targets): The original and revised targets unit of measure was a percentage at project approval. During the AF 2020 restructuring, the unit of measure was changed to "number". The investment promotion entities of GOKP include KP's Board of Investment, Special Economic Zones Authority and other relevant departments ( Tourism, Industries, and TEVTA). Thus the indicator is achieved. A.2 Intermediate Results Indicators Component: Component 1: SME Development Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion SME Rehabilitation Support Number 0.00 600.00 2,200.00 2,386.00 provided through the MGs. 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 Comments (achievements against targets): Page 33 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion SME beneficiaries of the up- Number 0.00 250.00 450.00 561.00 gradation MGs. 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Machinery pools/common Number 0.00 11.00 6.00 6.00 facilities supported by the Project. 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 Comments (achievements against targets): Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion SME beneficiaries satisfied Percentage 0.00 0.00 80.00 80.00 with the processing of the MGs under the AF of Project. 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 Comments (achievements against targets): Page 34 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Indicator introduced during the AF, thus no original target was set at project original approval in 2011. Component: Component 2: Attracting Investment from the Diaspora Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Re-connect Pakistan (web Number 0.00 10,000.00 10,000.00 42,683.00 tools for Diaspora) operational 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 Comments (achievements against targets): The number indicates the number of hits/views achieved by the web tools developed for the diaspora. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Diaspora outreach program Number 0.00 7.00 7.00 9.00 implemented through investment mobilization 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 events Comments (achievements against targets): Page 35 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Component: Component 3: Project Management and Capacity Building Support Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Officials of the Government Number 0.00 0.00 70.00 104.00 of KP attend training and study tours in technical 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 areas, including (i) trade and commerce, (ii) tourism and destination management and (iii) project management Comments (achievements against targets): Indicator introduced at AF and did not have an original target at project approval in 2011. Component: Component 4: Supporting the Competitive Sectors and Pandemic Response Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Micro-enterprises, workers Number 0.00 0.00 1,000.00 2,935.00 (including women) and SMEs trained through the Project 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 Comments (achievements against targets): Indicator introduced during the 2020 restructuring, as such did not have an original target at the project approval in 2011. Page 36 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Scalable projects and Number 0.00 0.00 6.00 7.00 activities identified in the competitive sectors of KP 11-Oct-2011 31-Dec-2021 31-Dec-2021 30-Jun-2022 Comments (achievements against targets): Indicator introduced during the 2020 restructuring, as such did not have an original target at the project approval in 2011. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Medical equipment and Number 150.00 0.00 200.00 1,530.00 supplies for COVID-19 pandemic response provided 02-Mar-2020 31-Dec-2021 31-Dec-2021 30-Jun-2022 to Health Department of KP Comments (achievements against targets): Indicator introduced during the 2020 restructuring, as such did not have an original target at the project approval in 2011. Page 37 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) B. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Creating Sustainable Employment Opportunities 1. Direct jobs restored and created by the enterprises supported under the Project 2. Direct jobs restored and created for women through the Project Outcome Indicators 3. Number of SME beneficiaries of the matching grants of which at least 5% of the businesses are owned/managed by women entrepreneurs 4. Matching grants beneficiaries operational and productive at the completion of the Project 1. SME Rehabilitation Support provided through the MGs 2. SME beneficiaries of the up-gradation MGs. Intermediate Results Indicators 3. Machinery pools/common facilities supported by the Project 4. SME beneficiaries satisfied with the processing of the MGs under the AF of Project. 1. 14,941 jobs restored against a target of 13,500 2. 865 jobs created for women against a target of 315 3. 3,042 SME beneficiaries against a target of 2,500 4. 75% beneficiary SMEs operational against a target of 60% Key Outputs by Component 5. 2,386 SME Rehabilitation MGs provided against a target of (linked to the achievement of the Objective/Outcome 1) 2,200 6. 561 SME Upgradation MGs provided against a target of 450 7. 6 Machinery pools/ common facilities provided against a target of 6 Page 38 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 8. 80% SME beneficiaries satisfied with processing of MGs against a target of 80% Objective/Outcome 2: Generating Private Sector Investment 1. Investment promotion authorities supported in KP province Outcome Indicators (number) 1. Re-connect Pakistan (web tools for Diaspora) operational Intermediate Results Indicators 2. Diaspora outreach program implemented through investment mobilization events 1. 5 investment promotion authorities supported against a target of 5 2. Re-connect Pakistan is operational and attracted 42,683 Key Outputs by Component visitors against a target of 10,000 (linked to the achievement of the Objective/Outcome 2) 3. 9 diaspora outreach programs implemented against a target of 7 Objective/Outcome 3: Laying the Foundation for the Future Development of Selected Economic Sectors Outcome Indicators 1. Tourist areas and facilities supported through the Project 1. Officials of the Government of KP attend training and study tours in technical areas, including (i) trade and commerce, (ii) tourism and destination management and (iii) project Intermediate Results Indicators management 2. Micro-enterprises, workers (including women) and SMEs trained through the Project Page 39 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 3. Scalable projects and activities identified in the competitive sectors of KP 4. Medical equipment and supplies for COVID-19 pandemic response provided to Health Department of KP 1. 59 tourist areas and facilities supported against a target of 50 2. 104 officials of the Government of KP trained against a target of 70. Key Outputs by Component 3. 2,935 micro-enterprises, workers and SMEs trained against a (linked to the achievement of the Objective/Outcome 2) target of 1,000. 4. 7 scalable projects identified against a target of 6 5. 1,535 items of medical supplies and equipment procured against a target of 200 Page 40 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Supervision/ICR Kiran Afzal Task Team Leader(s) Syed Wajahat Ali Shah Procurement Specialist(s) Mirza Omer Baig Financial Management Specialist Saiyed Shabih Ali Mohib Team Member Mishka Zaman Social Specialist Rehan Hyder Procurement Team Mohammad Arif Rasuli Environmental Specialist Mariam Sara Altaf Team Member Mohammad Asif Qurishi Team Member Sarmad Hussain Khan Team Member Syed Usman Javaid Team Member Aamir Khan Team Member B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY11 39.646 165,388.91 FY12 16.550 79,199.47 Page 41 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) FY13 7.763 11,204.55 Total 63.96 255,792.93 Supervision/ICR FY12 6.847 44,656.95 FY13 18.478 101,153.06 FY14 24.519 128,161.00 FY15 18.764 84,563.31 FY16 15.239 46,463.06 FY17 8.425 28,907.12 FY19 1.525 5,964.30 FY20 2.625 12,692.30 FY21 0 2,376.28 FY22 12.725 60,018.41 FY23 1.500 4,638.00 Total 110.65 519,593.79 Page 42 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Component 1: SME 22.60 0 Development Component 2: Attracting Investment from the 0 0.80 0 Diaspora Component 3: Project Management and Capacity 0 9.35 0 Building Support Component 4: Supporting the Competitive Sectors 0 6.25 0 and Pandemic Response Total 0.00 39.00 0.00 Page 43 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) ANNEX 4. EFFICIENCY ANALYSIS Economic Efficiency • Appraisal Analysis: At appraisal, an economic cost-benefit analysis was carried out as reported in Annex 11 of the PAD. The analysis was based on a number of assumptions as follows: • For the SME Development Component, it was assumed that, in the matching grants, (i) every dollar given by the Project would bring in one additional dollar of investment from the private sector; (ii) every dollar of investment will generate one dollar of annual sales; and (iii) the value-added component of sales was assumed at 30% of sales. For the Investment Mobilization Component, it was assumed that every dollar of the Project money spent will generate ten dollars of investment. Other assumptions were as for the SME Development Component. The economic viability indicators estimated were the Internal Rate of Return (IRR) and the Net Present Value (NPV) at a discount rate of 12%. Based on the assumptions, the overall estimated results for the Project were an IRR of 44.1% and an NPV of US$ 32.57 million. For the SME component alone, the results were an IRR of 42% and a NPV of about US$ 20 million. • Analysis at Additional Financing: As reported in Annex 3 of the Project Paper dated March 20, 2017, a cost- benefit analysis was carried out for the additional investment (US$11.60 million or 61% of the planned total investment) under Component 1 (SME Development). The indicators estimated were the Economic Internal Rate of Return (EIRR) and the Economic Net Present Value (ENPV). The EIRR was estimated at 75.6 percent and the ENPV at US$19.46 million. The main assumptions underlying the analysis were: • Every US$1 disbursed by the Project will attract US$1 of investment from the private sector. • Every US$1 of investment will generate US$1 of annual sales revenues. • The estimated direct benefits were based on the value-added component of sales assumed to be 30 percent of sales with a lag period of two years. • Average number of jobs created would be 5.6 per enterprise. Wage benefits were estimated at an average wage of PKR 12,000 per job with an annual increase of 5 percent. • The time horizon used for cost-benefit estimation was 10 years with a discount rate of 10 percent. • Post-Completion Analysis: Due to data limitations, the post-completion quantitative analysis has been carried out only for the SME Development Component. It is based on the financial results observed from a representative sample of SMEs participating under the matching grants. The sample includes 157 SMEs (about 8% of the total number of SMEs) and includes a number of business sectors including marble production; food and agribusiness; artisanal products; hospitality; and textiles and garments. Based on the information provided by the PMUs and the PU, financial efficiency results derived from the sample of SMEs are summarized below: Page 44 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) Indicator Unit Amount Total investment US$ million 2.91 of which: Matching Grant US$ million 0.88 Beneficiary Contribution US$ million 2.02 Total Sales Revenues US$ million 2.33 Total Net Income US$ million 0.93 Range of Profitability (Net Income/Sales Revenues) % 33% to 50% Range of Payback Period years 2 to 3.5 years Internal Rate of Return % 30% Net Present Value (at 12% discount rate) US$ million 2.11 • The Net Present Value estimated for the sample of SMEs can be taken as a proxy for the net economic benefits derived from the activities of the sampled SMEs. Extrapolating from the results of the sample to the overall population of SMEs, the net economic benefits under the SME component can be assessed as substantial with an NPV of around US$ 25 million (as compared to US$ 20 million estimated at appraisal). • On a qualitative basis, the Project had significant economic benefits through the growth of employment and incomes and the impacts on the lives of the population in KP and erstwhile FATA. The Project also resulted in institutional strengthening of the key implementing agencies in KP and erstwhile FATA thereby strengthening the foundations for future economic growth and development in the regions. Page 45 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS The ICR report was shared with the Borrower for review and comments. The Borrower, through the ICTE reviewed thoroughly the report and “found it to be well drafted”. The Borrower also appreciated the Task team and WB efforts in supporting the KP and erstwhile FATA with this project and provided minor comments to the narrative. The overall ratings for the project were found adequate, as well as the lessons learnt and recommendations from this operation. Page 46 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) ANNEX 6. SUPPORTING DOCUMENTS 6.1 MATCHING GRANTS SELECTION PROCESS AND CYCLE The matching grants administration followed the POM, which was prepared before effectiveness. The Manual was updated during implementation, to facilitate implementation and monitoring when needed. The updates followed issues encountered during the project implementation which slowed down the selection and disbursement process. Applicants’ qualification and eligibility to grants was paramount to the selection process and was thoroughly reviewed by a Grant Committee chaired by the local administration. ERKP-PMU and SMEDA-PU had progressively developed targeting procedures to minimize the chances of political influence in selecting eligible SMEs. Once the criteria were defined, the Grant committees developed at district level helped in selection and award of the grants. The chart below shows the matching grants cycle, once applications were received. Assessment Report prepared by FC - Ownership Application Case assigned to - Business proof Grant Application Application Review by Project Preparation of Field Visit and Complete entered into MIS Field Coordinator - Company details received Review Manager PU Field Visit Plan verification database ( FC ) - Damage verification - ESMP Incomplete Grant Review and Follow up with Document Review PU provides the Documentation Decision SME to get Committee ( DRC ) DRC Review information complete Committee missing info meeting required by GRDC ( GRDC ) meeting SME provides Documentation missing info incomplete in 30 days Applicant SME Response Sent back to PU informed through More info Grant approval from SME letter needed SME does not provide Approved missing info in 30 days Approved cases Application Missing Grant agreement Case closed sent to PMU for rejected information signed between MIS updated grant MIS updated provided SME and PU disbursement Cheque or online payment Online payment SMEDA PU Online payment informed within 5 made to SME by days of funds PMU transfer Monitoring by PU , GRDCs and PMUs Page 47 of 48 The World Bank Economic Revitalization of Khyber Pakhtunkhwa Project (P124268) 6.2 ERKP: SELECTED QUOTES FROM MATCHING GRANTS’ BENEFICIARIES 6.3 ERKP Covid-19 Support Mapping and supplies distributed across the province. 55 ventilators; 1,150,000 3-ply surgical masks; 25,000 glove boxes; 19,000 N-95 masks; 10,000 face shields; 1,475 hand sanitizers (cans); 60,000 viral transport medium kits and 5 automated RNA extraction on machines Page 48 of 48