Report No. 34553-GW Guinea-Bissau Integrated Poverty and Social Assessment (IPSA) Transition from Post Conflict to Long-Term Development: Policy Considerations for Reducing Poverty (In Two Volumes) Volume I: Main Report May 26, 2006 PREM 4 Africa Region Document of the World Bank MOE Ministry of Education MOH Ministry of Health MOL Ministry of Labor NGOs Non Governmental Organizations NRRP National Reconciliationand RehabilitationProgram OHADA Organizationfor Harmonizationof BusinessLaw inAfrica PAIGC PartidoAfrican0 paraa IndependCnciada GuinC-Bissau(African Partyfor the Independenceof Guinea- Bissau) PDDAA Programme de'taillepour le de'veloppernentde 1'agriculture Africaine PEASA Programa de Ernergencia do Apoio ri SegurancaAlimentar PER Public ExpenditureReview PNDS ProgrammeNationalde DCveloppementde la SantC PNDS National HealthDevelopment Plan PRGF PovertyReductionandGrowthFacility PRS Partidode Renovaqgo Social(SocialRenovationParty) PRSP PovertyReductionStrategyPaper PSR Public SectorReform QS QualitativeSurvey SMP Staff MonitoredProgram SSR SecuritySectorReform TEC Tarifa ExternaComum(Common ExternalTariff) TIPS Trade andInvestmentPromotionSupport TOT1 Terms of Trade TR TransitionRate UF User Fees UNCDF UnitedNation CapitalDevelopment Fund UNDP UnitedNation Development Fund UNOGBIS UnitedNation Office in Guinea-Bissau USAID United States Agency for InternationalDevelopment's USD United States Dollars VAR Vector Auto Regressive WAEMU West African Economicand MonetaryUnion Vice President: GobindT. Nankani CountryDirector: MadaniM.Tall SectorManager: RobertR. Blake Task TeamLeaders: Boubacar-SidBarry EstanislaoGacitua-Mario ... 111 Table of Contents ACKNOWLEDGEMENTS .................................................................................................................... VI11 EXECUTIVE SUMMARY ......................................................................................................................... X VOLUME 1:TRANSITION FROM POST CONFLICT TO LONG-TERM DEVELOPMENT: POLICY CONSIDERATIONS ....................................................................................................................................... x VOLUME 11:CONFLICT, LIVELIHOODS POVERTY INGUINEA-BISSAU AND XXIV 1. INTRODUCTIONTO VOLUME I ................................................................................................... 1 A. BACKGROUND LINKWITH THEPRSP................................................................. AND B. DATA AVAILABILITY AND EXISTING STUDIES , ...... C. THEANALYSIS........................................................................................................... 2. INSTITUTIONAL CONTEXT OF THE POST-CONFLICT PERIOD ........................................ 6 A. A LONG HISTORY POLITICALINSTABILITY OF . ............................ ......... B. A HISTORY WEAK GOVERNANCE ACC OF AND ............................................. c. FACTORS BEHINDTHEWEAK GOVERNANCE INSTITUTIONAL DEVELOPMENT AND .......... D. SECURITY SECTOR, LAND REGULATION CONFLICT ..................................................... AND E. CONCLUSIONAND POLICY CONSIDERATIONS ................................................................................. 23 3. POVERTY ANALYSIS .................................................................................................................... 24 ............................................... 43 D. CONFLICTAND POVERTY........................................ 4. MACROECONOMIC AND FISCAL POLICIES FOR PROMOTINGSOCIOPOLITICAL STABILITY AND ECONOMICGROWTH ................................................................................. 54 A. RECENT MACROECONOMIC PERFORMANCE .................................................................................... 55 B. c. MEDIUM SHORT TERMFISCALPOLICY FORSOCIOPOLITICAL STABILITY AND LONG TERMPOLICY FORMACROECONOMIC STABILIZATION AND GROWTH ... c. FACTORS THATMAYCONSTRAIN IMPLEMENTATIONOF D. CONCLUSION AND POLICY CONSIDERATIONS . .................... 70 5. MAKING AGRICULTURE MORE PRODUCTIVE AND SUSTAINABLEFOR POVERTY REDUCTRION ................................................................................................................................ 71 A. MAINOPPORTUNITIESAND CONSTRAINTS INAGRICULTURE............. B. TRANSACTION COSTS AND POVERTY REDUCTION THE CASHEW NUT IN SECTOR. C. SUSTAINING POVERTYREDUCTION AND GROWTH AGRICULTURE IN .............................................. 84 D. CONCLUSIONAND POLICY CONSIDERATIONS .......................................... .............................. 85 6. MAKING BASICEDUCATIONAND HEALTHCAREMORE AFFORDABLEFOR THE POOR ................................................................................................................................................ 86 A. EFAAND EDUCATIONSERVICE ...................................................................................................... 86 B. UFAND HEALTH SERVICE .......................... .... 103 C. A COMMUNITY-BASEDSERVICE DELIVERY FORREDUCING POVERTY ......................................... 111 D. CONCLUSION AND POLICY CONSIDERATIONS ... ......... ...... ...... 113 REFERENCES ......................................................................................................................................... 114 ANNEXES ................................................................................................................................................. 122 ANNEX1.VARMODEL .......................................................................................................................... 122 ANNEX2. PUBLICSECTORDOWNSIZING AND SEPARATION PACKAGES ................................................. 129 iv Listof Tables Table 1.1: Population Distribution (percent) by Age and Sex in 2005 ..................................................... 2 Table 2.1: Selected I C G R Indicators of Cohesion for Guinea.Bissau. 2005 .......................................... 12 Table 2.2: Institutions That Are Trusted the Most by the Population in 2005 ..................................... 13 Table 3.1: Poverty Decomposition by Region in 2002 (inpercentage) 25 Table 3.2: Subjective Perceptions of Well-Being in 2005 ........................................................................ ................................................ 28 Table 3.3: M a i n Source of Inequality in 2005 30 Table 3.4: Poverty by Age in 2002 ............................................................................................................. .......................................................................................... 31 Table 3.5: Poverty by Demographic Characteristics in 2002 (inpercentage) ....................................... 31 Table 3.6: Educational Attainment and Poverty in 2002 (inpercentage) 32 Table 3.7: Poverty and Sector of Employment in 2002 (inpercentage) ................................................. .............................................. 32 Table 3.8: Poverty by Distance from Basic Services - Bissau Region in2002 (inpercentage) Table 3.9: Poverty by Distance from Basic Services - Rest of the Country in 2002 (in percentage) Table 3.10: Access to Energy for Cooking and Lighting in 2002 (inpercentage) ................................. ................33 33 Table 3.11: Poverty Decomposition by Recipients of Prenatal Care in 2002 (in percentage) 34 Table 3.12: Poverty by Type of Healthcare Provider Used (inpercentage) .......................................... ..............34 34 Table 3.13: Revenue Shares by Economic Status in 2002 (in percentage) 36 Table 3.14: Revenue Shares by Region in 2002(in percentage) .............................................................. ............................................. 36 Table 3.15: Impact of Various Characteristics on Household Welfare in 2002 42 Table 3.16: Impact of the Conflict on Poverty ......................................................................................... .................................... 51 Table 3.17: Number of Years Required to Achieve Cumulative Growth and Poverty Targets Table 3.18: MillenniumDevelopment Goals and draft PRSP Targets ...........................................................52 52 Table 3.19: Perceptions on the Security Situations and Sources of Conflict in 2005 Table 4.1: Comparative Military Data for Selected African Countries in 2003 .................................... ............................ 53 Table 4.2: Impact of a Reduction of Wage spending on Growth in Guinea-Bissau, 2005-08 ..............63 Table 4.3: Efficiency in Tax Collection and Medium-TermFiscal Sustainability, 2005-08 68 Table 5.1: Cashew Sales by Tercile in 2005 .............................................................................................. .................68 80 Table 5.2: Impact of change in cashew prices on poverty, Guinea-Bissau ............................................ 82 Table 5.3: Stochastic Relationship Between Households' Non-agricultural and Agricultural Incomes ............................................................................................................................................................ 82 Table 6.1: Educational Status of Primary School Students by gender and economic status in 2002 (in percentage) ......................................................................................................................................... Table 6.2: Educational Status of Primary School Students by Region in 2002 (in percentage) ...........90 90 Table 6.3: Adult illiteracy Rates ( percent) for population above 15 years of age) 91 Table 6.4: Reasons for Dissatisfaction by Region in 2002 (inpercentage) ............................................. ............................... 92 Table 6.5: Reasons for Dissatisfaction by Type of School in 2002 (in percentage) 92 Table 6.6: Public Education Spending by Level, 2002-04 ....................................................................... ............................... 94 Table 6.7: Health Providers by Location and Economic Status (inpercentage) 105 Table 6.8: Health Providers by Region (in percentage) ........................................................................ ................................. Table 6.9: Selected Health Indicators in 2002 (inpercentage) .............................................................. 105 Table 6.10: Malaria Patients who Sought Professional Treatment in 2002 (inpercentage) 106 Table 6.11: Health Indicatorsin 2002 (inpercentage) .......................................................................... ..............106 107 Table 6.12: Persons who consulted a Health Provider and were not satisfied by the Reason of Dissatisfaction in 2002 (inpercentage) .......................................................................................... Table 6.13: Persons Sick who did not Consult a Health Provider and the Reason Why ( percent) 108 Table 6.14: UF Collected by Region in 2004 ........................................................................................... ..107 109 Table 6.15: Utilization of UFfrom Medical Consultations in 2004 (in percentage of total revenue collected) .......................................................................................................................................... Table 6.16: Utilization of UFfrom Drug Sales in 2004 (inpercentage of total revenue collected) ....109 109 V Annex Tables Table A1 1:Impact on GDPK of a shock to the cyclical component of GEK and TOTI (formulation) .......................................................................................................................................................... 123 Table A1 2: Impact on GEK of a shock to the cyclical component of GEK and TOTI (formulation) .......................................................................................................................................................... 124 Table A1 3: VAR ImpulseResponse Function for TOT (effect of one standard deviation innovation inTOTI) ........................................................................................................................................... 125 Table A1 4: VAR Impulse-Response Function for GEK (effect of one standard deviation innovation inGEK) ............................................................................................................................................ 125 Table A1 5: Normalized Impulse-Response Coefficients for GDP Growth ......................................... Table A1 6: Normalized Impulse-Response Coefficients for Changes in Government Spending .....126 126 Table A1 7: Impact on GDP of a shock to the cyclical component of GEK and TOTI (Simulation Results) ............................................................................................................................................. 127 Table A1 8: Impact on GEK of a shock to the cyclical component of GEK and TOTI (Simulation Results) ............................................................................................................. ............................... 128 Table A2 1: Average compensation per Separated employee (thousands of CFAF) 1/ ...................... 131 List of Boxes: Box 2.1: Land Regulation in Guinea-Bissau 21 Box 2.2: Status of the Cadastre ................................................................................................................. ............................................................................................. 22 Box 3.1: 2002 ILAP Survey 26 Box 3.2: 2005 QS - Methodology - Design, Data Coverage and Construction of Poverty Line and Data Coverage and Analysis ....................................................... .................... 27 Box 3.3: Perceptions of Food Security: Meeting the Food Needs of the Household Box 4.1: Summary of the M a i n Findings of the 2001/02 Diagnostic Studies of the Public Sector Box 4.2: Objectives of a SSR in Guinea-Bissau ........................................................................................ ....................................3861 Box 5.1: Improving the Business Environment for the Development of the Cashew Chain 83 Box 5.2: TIPS Initiative .............................................................................................................................. ................63 85 Box 6.1: Structure of the Education System in Guinea-Bissau ............................................................... 88 Box 6.2: M a i n Factors InfluencingDropout Rates in Primary Schools 91 Box 6.3: Designing a Social Fund ............................................................................................................ ................................................. 112 List of Figures Figure 2.1: Selected Governance and Accountability Indicators. 2004 11 Figure 2.2: Governance Indicators in 2002 .............................................................................................. ................................................. 14 Figure 3.1: Perceptions on the Evolution of the Economic Situation of Households by Quintile in2002 ...................................................................................................................................... 36 Figure 3.2: ProblemSatisfying the Food Needs of Households by Quintile in 2002 37 Figure 3.3: Impact of the 1998 Conflict on Per Capita GDP .................................................................. ............................. Figure 4.1: Budget and External Accounts Balances 1996-04 (in percentage of GDP) ........................ 50 Figure 4.2: Real GDP and Cashew Production Volumes, 1999-03 (change in percentage) Figure 4.3: External Transfers, 1999-04 ................................................................................................... .................55 56 Figure 4.4: Changes in Exports and Cashew Nut prices, 2000-04 (in annual percentage) 58 Figure 4.5: Revenue and Recurrent expenditure, 1999-04 ...................................................................... ...................57 59 Figure 4.6: Evolution of the Payroll and the Wage Bill, 1999-2004 ........................................................ 60 Figure 5.1 Trends in Cashew Prices, 1979-03 75 Figure 5.2: Cashew Yield and Poverty ...................................................................................................... ........................................................................................... 77 Figure 6.1: Literacy Status of the Head ofthe Household in 2002 ......................................................... 87 Figure 6.2: Access to Primary Education by Region in 2002 87 Figure 6.3: Main Reasons for not Attending School in 2002 ................................................................... .................................................................. 90 Figure 6.4: Access, Usage and Satisfaction with Education in 2002 90 Figure 6.5a: UnitCost per Student in EBE, 2002-2004 ........................................................................... ....................................................... 95 vi Figure 6.5b: Unit Cost Per Teacher inEBE. 2002-2004 .......................................................................... 95 Figure 6.6: EnrollmentRatesinBasic Education, 10997-2003 (in percentage) 95 Figure 6.7: Gross Intake Rates (GIR), 2004-2004 inEBE ...................................................................... .................................... 96 Figure 6.8: Transition Ratein Primary& SecondaryEducation2002-04 ........................................... 100 Figure 6.9: Incidenceand Coverageof Public Spendingon Education in2002 .................................. 102 Annexes: VAR Model................................................................................................................................................ 122 Public SectorDownsizing and SeparationPackages.................................................................................. 129 vii ACKNOWLEDGEMENTS This Integrated Poverty and Social Assessment (IPSA) i s organized into two volumes. The current volume, the main report, provides the core poverty and social analysis. The second volume offers a series o f selected issues derived from the core themes and analyzes the impact o f conflict and vulnerability on growth and poverty. Volume two was prepared with financial support from the ESSF Trust Fund. IPSA i s based on the findings o f three missions to Guinea-Bissau headed by Boubacar-Sid Barry and Estanislao Gacitua-Mario. The first one was a preparatory mission which took place in December 2004. During this mission, preliminary contacts were established with the authorities to explain the objectives o f the work to be carried out, and the identification o f international and local consultants to carry out the work. A local IPSA team was established at the National Institute o f Research and Census (INEP) which also provided local consultancy services for the realization o f the Quality Survey. The coordinator o f the local team was Mr. Mamad6 Jao (Director General, INEP). The second mission that took place in February 2005 worked in close collaboration with the local team and the team o f international consultants to train the local consultants in the use o f the survey questionnaire, and to launch the QS. The third mission that took place inApril 2005 workedwith ateam oftheNational Institute of Statistics (INEC) to process the 2002 household survey data. The INEC team was composed o f Messrs. Adulai Jalo (Economist), andBessa Vitor da Silva (Demographer). The mission also worked with the INEPteam to analyze the QS data. The INEP team included MessrsMmes. Mamadh Jao (Director General) and Fernando Leonard0 Cardoso (Researcher), and Catarina Gomes Viegas (Researcher) and Deolinda Mendes Silva, Bucar Indjai and Iaia Biai (local consultants). Security sector-related issues were discussed with Mr. Pedro Correia, Coordinator o f the Demobilization Reinsertion and Reintegration Program (DRRP) o f Guinea-Bissau. During the mission, the team discussed preliminary results with the authorities in a workshop that was attended by officials in ----the Minister o f Finance, and chaired by the Minister o f Economy. The other members o f IPSA'S core team are Quentin T. Wodon, Edward Creppy, Hakon Nordang, Sigrun Aasland and Anne Marie Bodo. Other Bank staff that- participated inthe missions were Christian Fauliau, Miki Takahashi, Carmen Pereira and Gilbert Pouho. Contributions and useful suggestions and comments were also received from Michael Drabble, Laura Rose, Harry Snoek, Maurizia TOVO,Abdoulaye Seck, Ndiame Diop, Clarence Tsimpo, Ilda Lourenqo-Lindell, and Humberto Lopez. Faye Harbottle and Glaucia Reis Ferreira provided logistic and language assistance during document preparation. The peer reviewers are Marcel0 R. Andrade, Louise J. Cord, and A n i s A. Dani. The report was prepared under the supervision o f Robert R. Blake (Sector Manager, AFTP4), who offered conceptual guidance, provided critical analytical advice- and ensured quality control and management support. Madani M.Tall (Country Director AFC14) and Iradj A. Alikhani supported the process and provided u s e h l comments. Messrs. Yuta Harago and Takayoshi Fukuyo, international consultants from the Japan Brazil Network (JBN) were contracted to collaborate with INEP in the implementation o f the QS. Senior officials from the Ministries o f Finances, Economy, Vlll ... Education, Health, Public Administration and Labor, the BCEAO, the INEC, the INEP, the UNDP, UNICEF and other representatives o f the main donors based in the country cooperated with the missions and provided relevant inputs for the analysis. The Bank missions benefited from the exchange o f information with IMF and African Development Bankmissionsthat were also visiting the country at he same period. The report benefited from generous support from a TFESSD grant managed by Louise Fox and Quentin Wodon inthe Africa PREM front office. InJuly 2005, Mr.Yuta Harago suddenlypassed away inan unfortunate accident. We want to acknowledge his work and express our sincere regrets. ix EXECUTIVESUMMARY IPSA is organized intwo volumes. The current volume, the main report, provides the core poverty and social analysis. The second volume offers a series o f selected issues derived from the core themes and aims at analyzing the impact o f conflict and vulnerability on growth andpoverty. VOLUME 1:TRANSITION FROMPOSTCONFLICTTO LONG-TERM DEVELOPMENT: POLICY CONSIDERATIONS 1. Introductionto Volume I Followingthe 1998 military conflict, instability has become a major constraint for. good governance, poverty reduction and growth inGuinea-Bissau. According to the 2002 light household survey (ILAP), about two-thirds o f the country's population lived in poverty, with three-fourths o f the poor residing in rural areas and practicing agriculture. In this context, ensuring sociopolitical stability in the short-term, and promoting fiscal adjustment and growth in the medium-term should represent a crucial element of the authority's Poverty Reduction Strategy Paper (PRSP). As a core element o f the Bank's analytical work, the Integrated Poverty and Social Assessment (IPSA) i s intended to provide support to the reform process currently taking place inthe country. 2. InstitutionalContextof the Post-ConflictPeriod A. A Long History of Political Instability. Following a decade-long struggle with Portugal, Guinea-Bissau became independent in 1974. After two decades o f a centrally-planned economic system marked by recurrent episodes o f military-related instability, the country held its first multi-party legislative and presidential elections in 1994. An army uprisingin 1998 triggered a bloody civil war that displaced over 300,000- members o f the civilianpopulation. Failed governance, breakdown o f the rule o f law, and limited accountability and transparency o f public sector management were among the causes ofthe conflict that lasted nearly a year. Following the conflict, attention was turned to the task o f reconciliation and rehabilitation. A Government o f National Union (GNU) prepared a National Reconciliation and Rehabilitation Program (NRRP), and organized free and fair parliamentary elections in 1999. However, the implementation o f the NRRP was undermined by the lack of political consensus, as a new constitution approved by the Parliament in April 2001 was not endorsed by the President. The resulting ambiguity undermined the rule o f law, and a prolonged friction developed between the executive and the legislative branches o f the Government. Following several military-related incidents during 2001-02, and delays in holding parliamentary elections as initially scheduled, the military led a bloodless coup in September 2003. A civilian transition Government was immediately appointed, and charged with the task o f rebuilding the administration andpreparing legislative andpresidential elections. X The transition Government preparedthe Emergency Economic Management Plan (EEMP) inend-2003, and successhlly organized free and fair parliamentaryelections in early-2004. A new Government was appointed which endorsed the EEMP, prepared a draft PRSP and a budget for 2004. Budgetary management has improved during the second half o f 2004, and free, fair and transparent presidential elections were organized inJune-July, 2005. B. A History of Weak Governanceand Accountability.InGuinea-Bissau, boundaries between the public and private sectors are often ill-defined. This contributes to erode the public's confidence inthe government, and thus citizens' willingness to pay taxes or support the Government's reform policies. The financial accountability system remains relatively weak, and mass disclosure o f information on public accounts remains limited. Also, Guinea-Bissau's rule o f law and government effectiveness indicators, and the overall risk rating o f the International Country Risk Guide (ICRG) are among the lowest in Sub-Saharan Africa. The public's perceptions of different institutions indicate that local schools and healthposts are the most trustworthy institutions. Thejudiciary, the police, religious organizations and traditional authorities benefit from much lower levels o f trust. Non Governmental Organization (NGOs)and other Civil Society Organizations (CSOs)/Community Based Organizations (CBOs) often supplement the often weak presence o f the Government inrural areas. C. FactorsbehindWeak GovernanceandInstitutionalDevelopment.The current weak governance situation dates back to the colonial era. The colonial State promoted limited presence o f the Government in rural areas. Traditional authorities, therefore, played a leading institutional role inlocal communities duringthe colonial rule. The post-independent State largely inherited the weak institutional legacy o f the colonial era. Traditional authorities, particularly in rural areas, continued to wield power in the communities, either by dominating the State-sanctioned village committees or by sidelining them. In the end, the village committee system gradually became defunct, leaving the State with little presence at the village level. At the same time social and political leaders have established strong paternalistic relationships with their constituencies without building broader coalitions or strengthening the legitimacy o f the existing state institutions. Inrecent years, some progress has been made in social service delivery, notably in education and health, thanks to the active role played by civil society organizations and the support o fthe international community. D. Security Sector, LandRegulationand Conflict.The armed and security forces reportedly lack adequate dwelling places and sanitation services. Moreover, the. army recruits are predominantly from one ethnic group, which represents a major risk o f ethnic tension. These important issues would need to be urgently addressed through a comprehensive security sector reform (SSR) in the broad context o f a PSR program. Finally, the absence o f a formal regulatory framework for the attribution and use o f land represents another major source o f inequality and civil conflict particularly at the local level, which will need to be urgently addressed through the official adoption o f the new LandLaw inplace since 1998. xi E. Conclusion and Policy Considerations. At this juncture o f Guinea- Bissau transition from post-conflict to long-term development, it is o f outmost importance to enhance political stability in order to mitigate risks o f conflict as experienced inthe past. It i s therefore critical to address security and landissues, the two main factors o f conflict inthe country. Inthe short-term, improving living conditions inmilitarybarracks will be critical for preserving political stability. Inthat vein, key immediate actions under the SSR would include the rehabilitation o f military dormitories, and sanitation and food services in military caserns. In the medium-term, the SSR would need to address issues related to downsizing the armed forces, reforming the pension system, and balancing the ethnic composition o f the security sector. With regard to land reform, the Government would need to officially adopt and implement the new Land Law in order to provide a legal and regulatory framework for the resolution o f conflict stemming from land use. Finally, updating the cadastre will b e critical for the implementation o f the landreform. 3. PovertyAnalysis A. Poverty Profile.The incidence o f poverty, as measured by the headcount poverty index, remains relatively high. At the household level, 58.9 percent of the population lived in poverty in 2002, with 16.8 percent leaving in extreme poverty. The poverty incidence is higher for larger households, and for men compared to women. This' phenomenon i s partly explained by the different family structures (monogamous vs. polygamous) and their distribution across urban and rural areas, as well as by the fact that women generally engage in various income generating activities, such as the processing o f cashew nuts, to supplement the income o f the household. Based on the findings o f the QS completed in 2005, poverty i s believed to have increased since the last household survey. Nearly 77 percent o f households believe that their livelihood situation worsened in2004 compared to the periodbefore the conflict. Similarly, 54 percent believethat their situation has worsened in 2004 compared to 2003. Simulations based on these findings and initial conditions in 2002 indicate that the incidence o f poverty is likely to have increased to 62.4 percent in2004. B. Determinants of Poverty. The poverty rate among household heads within the age cohort o f 35-55 years is higher (58 percent) than the rate among households headed by people who are less than 35 years old (48 percent). As expected, the highest incidence o fpoverty occurs inhouseholds headed by persons aged 55 or more (71 percent), who are likely to have a higher level o f family responsibilities due to the relatively large household size. Surprisingly, the poverty headcount shows that the incidence o f poverty is higher among men (61 percent) than women (51 percent) as pointed out in the poverty profiling. The incidence of poverty among household heads with tertiary education is 29 percent, compared to 65 percent for heads with no level o f education. Not surprisingly, poverty incidence is higher among heads working in agriculture (56 percent) compared to Government andprivate sector workers. xii 1. Socioeconomic characteristics of poverty. With regard to social services and poverty, the poverty incidence among those who live less than 15 minutes from' potable water, primary school and health facilities, inBissau is lower than those who live more than 15 minutes from these services. Inthe rest o f the country, however, the only services with a similar pattern o f distribution are secondary schools and health facilities. About 68 percent o f the households in Bissau do not have access to energy and electricity. In the rest o f the country, the proportion o f households without electricity i s much higher at 95 percent (65 percent o f households who use firewood for cooking are below the poverty line whereas only 12 percent o f those who use electricity or gas for cooking are poor). In terms o f access to healthcare, the poverty incidence i s very high' (about 83 percent) among women who have had a live birthinthe last 12months without prenatal care compared to those who had it (63 percent). Also, the poverty rate among those who use neighborhood midwiveshurses as the main healthcare provider i s highest at 88 percent, whereas only 39 percent o f individuals who used private clinics lived below the poverty line. With respect to income and expenditure and poverty, about 40 percent o f household spending are allocated to the purchase o f food, while salaries and the sale o f agricultural products are the main sources o f income. The overall economic situation o f households and their communities at large seem to have deteriorated compared to the year prior to the survey year. This situation seems to have aggravated the ability o f household heads to adequately feed their families. However, women headship o f the household is believed to have contributed inimproving food security. 2. Determinants of welfare. In rural areas, for each additional infant and child the expected level o f consumption o f a household i s likely to decrease respectively' by 8 and 10 percentage points. Inurban areas, where the cost o f living is likely to be higher, the decrease inthe expected level o f consumption is higher especially for infants and children. In female headed households inrural areas, consumption per capita and the accumulation o f assets i s likely to be higher thanhouseholds headed by men. The marital status o f household heads seems to have a positive impact on consumption per capita and on the accumulation o f assets. Inrural areas, the expected level o f consumption, for household heads who are single, married (monogamous) and' those who are married (polygamous) is respectively 19 percent, 15 percent and 16percent higher than the consumption levels o f households headed by those who are divorced or widowed. Inurban areas, however, only households headed by those who are single are likely to increase consumption per capita. Infact, the magnitude o f the effect is pretty strong at 35 percent, compared to heads that are divorced or widowed. Inrural areas, consumption increases by 12 percent for heads with secondary education and by 35 percent for heads with tertiary education compared to heads with no level o f education. In urban areas, the effect i s even stronger at 24 percent for secondary school educated heads' and53 percent for heads with tertiary education. Itis also evident from the results that the impact o f education on the accumulation o f assets i s highboth inurban areas as well as inrural areas. Inurban areas, for example, asset holdings o f households increase by 8 percent, 21 percent and 48 percent, xiii respectively, for heads with primary, secondary and tertiary education, whereas in rural areas, the increases in assets are 4 percent, 16 percent and 43 percent, respectively. The impact o f education on income is limited to urban areas where the income level of household heads with tertiary education is 70 percent higher than the income o f heads with no level o f education. For household heads that live in rural areas and are employed in sectors like Transport/Commerce and Educatioflealth, income per capita i s likely to increase by 47 percent compared to heads working in the agricultural sector. This finding may confirm the existence o f low productivity in agriculture compared to other sectors. Inurban areas, however, the only sector which seems to have a positive impact on income is Transport/Commerce, which increases income by 46 percent. Moreover, rural household heads who are employed in Transport/Commerce and in the fields o f Educatioflealth are likely to increase the asset holdings o f their households by 24 percent and 15 percent, respectively. It i s worth noting that in these areas, working in the Industry and Construction sectors can also enhance the accumulation o f assets. Surprisingly, there i s likely to be a 17 percent reduction inconsumptionper capita for households whose heads work in the healtldEducation sector in rural areas. This phenomenon may be partly explained by the frequent salary arrears and payment delays, which may adversely affect consumption patterns. Urbanhousehold heads, who work inthe private sector, are likely to increase income per capita by 42 percent compared to their counterparts who work in government. This finding not only illustrates the potential o f the private sector for reducing poverty, but also confirms the likely presence o f low productivity in the public sector. With regard to migration, rural households whose heads have migrated (at least for a month in the last 12 month have experienced a small increase in the level o f asset accumulation compared to households whose heads have never migrated. In terms o f consumption per capita, the impact is observed in both rural and urban areas. Inurban areas, for example, temporary migration is likely to increase the level o f consumption per capita by 16 percent higher than in similarly located households without a head who has ever migrated. C. Livelihoods of the Poor. In urban areas, the informal sector plays a. significant role in livelihood strategies. Informalization o f livelihoods, while characteristic across Guinea-Bissau, i s a particular feature o f the livelihoods o f the urban poor. More than 90 percent o f the urban families recently surveyed in urban areas, lives essentially from activities inthe informal sector. Inthis setting, women have historically played an important role in small trading, domestic work, dressmaking, weaving, extraction o f cashew juice/wine etc. Informality is also a common feature o f the labor market.Duringperiods o fharvests, some people, particularly younger women and youth, seasonally migrate towards the rural areas o f the country to offer their labor to farmers,. particularly cashew producers. Salary earning activities represent men's main livelihood means. For urban men, casual work is increasingly the main activity and livelihood strategy. This represents a serious cause o f vulnerability as formal wage opportunities become limited. xiv Inrural areas, subsistence agriculture represents the main livelihood strategy in rural areas. Rice remains the most widely grown staple crop in the country. Cashew (including production and sale o f cashew wine) has played a particularly important role for many households, providing an important source o f income. Livelihood strategies o f the rural poor tend to differ across regions and are also influenced by the social characteristics o f households and individual household members (such as ethnicity, family structure, gender, religion, age, etc.). Agriculture and cattle are the main livelihood means inthe Northern and Eastern regions and part o f the South (rice), while fishing is common inthe South andthe islands. D. Conflict and Poverty. Evidence suggests that Guinea-Bissau's economy would have performed better ifthere had been no conflict. The estimation results indicate that the country's Gross Domestic Product (GDP) per capita would have been more than 40 percent higher in2004 than it actually was ifthere had been no conflict. As a point of comparison, in Rwanda where the human, social and economic costs o f the Genocide have been staggering, the estimates suggest that per capita GDP today would be between 25 and 30 percent higher if the Genocide had not taken place, which suggests a smaller economic impact than in Guinea-Bissau. Similarly, the results indicate that the poverty incidence would have been lower if the conflict had not occurred. Today, about two- thirds o f the population is poor, i.e. with a level o f consumption per equivalent adult' below the US$ 2 poverty line inpurchasing power parity terms, with 21.6 percent being be 42.3 percent higher than actually observed -- poverty would be much lower. The extreme poor. Ifthe conflict had not taken place -- so that per capita GDP today would results suggest that the share o f the population in poverty today could be around 43.0 percent, instead o f 65.7 percent, while the share o f the population in extreme poverty could be at 7.6 percent, instead o f 21.6 percent. Under these circumstances, it will be difficult for Guinea-Bissau to achieve the' Millennium Development Goal (MDG) for poverty reduction by 2015. If the real GDP were to grow on average at 5 percent per year in the long run, the poverty incidence will bereduced to 45.7 percent by 2015. However, rural poverty will remain relatively highat 50.6 percent. Ifthe long rungrowth performance is less than 5 percent, the poverty rate is expected to remain above 50 percent, with rural poverty remaining around 60 percent. Based on these results, it is safe to argue that ifthe conflict had not occurred, the country would have made significant progress toward achieving the MDG target for poverty reduction by 2005. In order to address this challenge, the Government would need to- diversifythe sources o f growth and implement policies designed to makepublic spending more pro-poor, inthe context o fthe PRSP Iorder to alleviate poverty. With regard to the impact o f security and land-related conflict on poverty, 50 percent o f households consider that the security situation has improved over the last year. However, the majority o f households in the bottom tercile (the very poor) believe that their situation has deteriorated. Land remains a major source of conflict. Apart from internal family issues, most local conflict situations seem to arise fiom issues related to` land, water, and livestock, especially in rural areas. There is evidence that poor households tend to rely mostly on traditional authorities inorder to solve conflicts, while the betteroffrely more on the police. xv E. Conclusion and Policy Considerations. Guinea-Bissau is a country with very limited poverty data. With the data currently available it is almost impossible to analyze in detail the factors that cause poverty to change over time (growth versus distributional effects), and/or to carry out poverty impact analyses inkey sectors such as cashew, rice, etc. As the implementation, monitoring and evaluation o f the PRSP will start soon, it is important that such analyses are carried out in order to make the PRSP a" more result-oriented framework. Inthis regard, it i s critical to develop a coherent and reliable poverty database over time. The scope o f the next survey should be broadened to include: (i) detailed information about households' income and expenditure and price information o f key commodities such as cashew nuts and rice production etc.; (ii) education and health service delivery; and (iii) and landissues. conflict 4. Macroeconomic and Fiscal Policies for Promoting Sociopolitical Stability and Economic Growth A. Recent Macroeconomic Performance. Guinea-Bissau performed in a generally satisfactory manner during 1987-98. Following a decade o f a ruinous State- controlled economic policy, the country embarked on a comprehensive reform program starting in 1987, and agreed upon a three-year Enhanced Structural Adjustment Facility (ESAF) arrangement with the Fund in 1995. Broad liberalization o f the economy contributed to reduce large macroeconomic imbalances. Between 1996 and 1997, the public sector primary surplus increased from 3 to 5 percent, and the external current account deficit (excluding official transfers) improved from 18 to 14 percent. Inflation- decelerated from a record 50 percent in end-1997 to 8 percent in early 1998, owing to restrained public sector demand and regained stability from becoming a member o f WAEMU. Domestic production, particularly in agriculture, accelerated with real GDP growth reachingmore than 5 percent inaverage during 1987-97. The disruption o f the economy was significant during the conflict in 1998. Real GDP contracted by about 28 percent in 1998 due to a sharp decline o f production activities in all sectors. The armed conflict adversely affected the country's fiscal and balance o f payments positions. The external current account deficit (excluding official transfers) remained high at nearly 16 percent o f GDP and the current primary budget balance, moved from a surplus o f about 5 percent o f GDP in 1997 to a deficit o f about 7 percent o f GDP in 1998. As a result, domestic arrears and external debt service arrears piled up to reachnearly 15 percent o f GDP. After the war, real annual GDP grew by nearly 8 percent during 1999-2000. Simultaneously, Government revenue reached 18 percent o f GDP, and the overall budget- deficit (excluding grants) increased from 14 to 25 percent o f GDP between 1999 and 2000, as a result o f increased post-conflict reconstruction activities. During the period through December 2000, progress continued to be encouraging on the macroeconomic front, and the country completed its interim PRSP, reached the decision point under the HIPC Initiative, and agreed upon a three-year PRGF program with the Fund for the period 2001-2003. Early in 2001, the macroeconomic program was found to be substantially o f f target owing to large unbudgeted expenditures mainly on defense, and financed by credit from the bankingsystemandpromissory notes. Consequently, the first xvi review o f the PRGF by the Fund was not concluded as scheduled in 2001, and the program was declared o f f track. After two unsuccessful short-term staff-monitored programs (SMP), efforts to revive the program were abandoned by mid-2002, and the arrangement expired at end-2003 without the completion o f a review. Subsequently, economic performance deteriorated and real GDP decelerated at the rate o f 7 percent by end-2002. In2003, the economy remained sluggish with real GDP growing by only 0.6- percent, and fiscal management further deteriorated with a substantial diversion o f resources to expenditures taking place outside the legally established budgetary procedures. In 2004, the Government embarked on the EEMP with the support o f the international community. Since then, public finance management has started to improve and the economy has begun to recover with real GDP growing at more than 2 percent by end-2004. B. Short Term Fiscal Policy for Sociopolitical Stability. In order to- preserve stability in the current polarized sociopolitical context, the authorities would need to take immediate measures aimed at improving living conditions in military barracks, ensuring the payment o f public sector salaries, and delivering basic social services to the population. It i s unlikely that the Government will be able to achieve these objectives by its own efforts. Education and health programs, for example, are highly dependant on external donor financing. The Government is, therefore, likely to be unable to deliver basic social services, as domestic resources arejust sufficient to pay salaries. C. Medium and Long-Term Fiscal Policy for Macroeconomic Stabilization and Growth. Inthe medium-term, the authorities would need to implement structural reforms aimed at restoring fiscal sustainability through a major fiscal consolidation effort. The latter should preferably be carried out in the context o f a broad public sector reform (PSR) program aimed at bringing the non education and health public sector wage bill to a sustainable level, and reforming the security sector. The success o f the PSR will depend on the capacity o f the private sector to create new job opportunities as an alternative to public sector employment. Inorder to revive the private- sector, the authorities would need to accelerate the divestiture program, improve the business climate, and rehabilitate utilities, road, and port infrastructure and microfinance services. Inorder to enhance public sector productivity and growth it is urgentto downsize the Government's wage bill (in sectors other than education and health) at sustainable levels, in the context o f mediurn-term civil service reform. For efficiency and fairness purposes, separation packages may be needed to overcome resistance to public sector downsizing. In the case of Guinea-Bissau, evidence suggests that if real Government consumption (namely wage spending) were reduced by 2 percent (5 percent in nominal terms corresponding to 1percentage point o f GDP) annually over the period 2006-2008, real GDP would increase by about 1.6 and 2.9 percentage points in 2007 and 2008, respectively, compared to baseline growth targets for the same years. Although these results are consistent with empirical findings, they may be overestimated in the case of- xvii Guinea-Bissau, given the weak institutional capacity o f the State and other binding constraints to private sector growth. Public sector downsizing will, however, not be sufficient for achieving medium- term fiscal sustainability. In order to achieve a current surplus in the medium-term, the Government will need to pursue sound expenditure management and improve the efficiency o f revenue collection by reinforcing and sustaining the ongoing reforms inkey departments o f the Ministries o f Finance and the Ministry o f Fisheries. The proposed SSR should also address the size, the pension system, and the ethnic composition o f the armed forces over the mediudlong-term. The sustainability o f Guinea-Bissau's external debt remains a major concern. Medium-term debt sustainability depends on continued fiscal adjustment and support from the international community. Finally, persistent internal political tensions, weak institutional and governance capacity o f the State and vulnerability of cashew nuts to external price fluctuations represent a major limitation to the implementation o f reforms. D. Conclusion and Policy Considerations. It is imperative that the new administration ensures the continuity o f institutions and commits to the reform program put in place since end-2003. In that vein, the authorities will need to adopt a comprehensible short and medium term reform strategy. In the short-term, the Government will need to pursue priority spending programs such as wage and salary payments and the delivery o f social services to civilians and the military. Inthe medium- term, the authorities will need to: (i)accelerate ongoing structural reforms aimed at promoting the development o f the private sector; (ii)carry out a broad fiscal consolidation reform with the objective o f reducing the size o f the wage bill, improving the efficiency o f revenue collection and promoting fiscal sustainability; (iii) reforming the security sector; and (iv) normalizing relations with external creditors. Strengthening the government, political stability and institutional capacity, are critical in implementing these reforms. 5. MakingAgricultureMore Productiveand Sustainablefor PovertyReduction Agriculture has been for a long time the backbone o f Guinea-Bissau's economy. The sector represents more than half o f the GDP, employs four-fifths o f the labor force, and contributes to more than 90 percent o f the country's export earnings. Over the past three decades, the production o f cashew nuts has taken a leading role in the country's economy. However, hightransaction costs associated with the poor business environment and weak physical and administrative infrastructure, contributes to limit income generation for smallholders inthe cashew sector. A. Main Opportunitiesand ConstraintsinAgriculture. Guinea-Bissau has a largely untapped potential for agriculture. The country i s endowed with fertile soils, abundant water and favorable climate. It i s the sixth largest producer o f cashew nuts (6 percent o f the world cashew production) after India, Vietnam, Brazil, Ivory Coast, and Tanzania. Guinea-Bissau's weather is also favorable to the production o f other cereals and a large variety o f fruits. The country has large and valuable fish resources. The xviii fishery sector provides about half o f the Government's budgetary revenues though fishing license payments. Livestock represents about 32 percent o f agricultural GDP and is produced mainly in the Eastern part o f the country. However, the country i s a net importer o f fiesh meat, mainly poultry. Growth inagriculture is constrained by the lack o f investment, unclear land tenure rights and inappropriate technical assistance support. As in the other economic sectors, public investment in agriculture has stalled in recent years due to the reallocation o f public resources to defense and security programs. Similarly, private investment has suffered fiom the lack o f adequate micro financing mechanisms. Guinea-Bissau produces and exports raw cashews. This situation places the sector ina vulnerable condition vis-a- vis price fluctuations on the international markets. The absence o f a coherent rice-cashew strategy represents a major threat to rice production and food security. The lack o f a strategy fostering the articulation o f commercial and export agriculture, with small farm subsistence and local market food security oriented agriculture, has threatened food security and hamperedthe development o f value added particularly to the cashew system. The farmers are naturally inclined to engage in commercial crop production o f more guaranteed value. Eveninthat case, the lack o f road infiastructure inrural areas limits the access o f rural productionto local and regional markets, and often contributes to increase agricultural transaction costs. B. TransactionCosts and PovertyReductionin the Cashew Nuts Sector. The cost o f doing business inthe cashew sector remains relatively high.As mentioned in the first two chapters, instability andweak governance remain major disincentives for the much needed domestic and foreign investment in the sector. This situation is further complicated by changing regulations, unclear and cumbersome administrative requirements for existing and new businesses, and dysfunctional legal enforcement and inadequate utilities and seaport systems. Moreover, bureaucratic regulations, the absence o f coordination between producers, and the lack o f supervision on the Government side also lead to higher transaction costs, which translate into lower farm gate prices for farmers. Furthermore, the current export tax on cashew nuts (6 percent), relative to other exports (2 percent), i s likely to have a disproportionate effect on rural incomes in the short-term. Transaction costs represent an implicit tax on cashew (and other exportable) producers. Reducing these costs is likely to increase the farm gate price for cashew producers, and therefore improve their consumption o f goods and services. Inthe case o f Guinea-Bissau, evidence suggests that a 15 percent increase in farm-gate prices for cashew nuts could result in an increase in consumption for the extreme poor o f 9.5 percent, and 3.3 percent for the poor. Moreover, an increase in the export tax on unprocessed cashew nuts o f about 10 percent could potentially (with full pass through to farmers) generate a reduction intheir farm-gate price o f close to 15 percent (this assumes that farmers get 70 percent o f the export price). The finding also suggests that there are significant second round poverty reduction effects o f cashew on other non-agricultural activities. A 1 percentage point increase in households' agricultural income i s likely to increase non-agricultural incomes by 0.4 percentage point. The labor market i s the main xix transmission channel o f these spillover effects because cashew farming i s a labor intensive activity which employs mostly unskilled laborers. C. Sustaining Poverty Reduction and Growth in Agriculture. The monoculture o f raw cashew poses a serious threat to long-term agricultural development. Although rice i s the main staple food in the country, its farming has sharply declined in favor o f cashew over the past three decades. As a result the country has relied heavily on rice imports to meet the domestic demand for cereal. The gap filled by rice imports represents about 25 percent o f the trade balance. The rice deficit has also been filled by barter transactions between rice and raw cashew nuts starting in 1984. Bringing rice production to pre-independence levels would require the introduction o f high-yield rice seeds, and the rehabilitation o f rural roads. Guinea-Bissau produces mainly raw cashews, which provide less value added and remain highly vulnerable to exogenous climate and price hazards. The processing o f cashew will contribute increased agricultural value added and create more jobs. Guinea- Bissau could potentially have a sizeable processing industry that would create thousands o f jobs and earn a great deal o f value added that i s currently lost by not processing raw cashew. However, as mentioned earlier, the development o f the cashew processing industry depends on the ability to attract investment, o f which most will have to come from outside the country. For the rural sector to ensure food safety and create new jobs, policy makers would need to adopt a coherent agrarian development strategy inthe context o f the PRSP, which would aim at rehabilitating and encouraging rice production, the diversification of agricultural production and promoting the processing o f raw cashew into exportable cashew kernels. The development o f a variety o f agricultural products and the diversification o f agricultural exports, including fruits and vegetables, forestry, and small animals would be a priority. This is particularly important at this moment as the Government is readying to implement major civil service and SSR. These reforms would revive the private sector and contribute to the creation o f new jobs to absorb part o f the labor force to be discharged from the public payroll. D. Conclusion and Policy Considerations. Despite Guinea-Bissau's large potential in agriculture, there are high transaction costs stemming from administrative' barriers, weak infrastructure and lack o f diversification. For the rural sector to create labor intensivejobs, policy makers would need to adopt a coherent agrarian development strategy inthe context o f the PRSP, which would aim at promoting: (i) the processing o f raw cashew into exportable cashew kernels; and (ii) the export o f tropical fruits. This is particularly important at this moment as the Government i s readying to implement major PSR. These reforms will contribute to reviving the private sector by creating the much needed new jobs to absorb part o f the labor force to be discharged from the public- payroll. xx 6. MakingBasic Education and Healthcare More Affordable for the Poor A. EFA and Basic Education Service. The rising concernwith the quality o f education, especially in Sub-Saharan Afr-ican countries was reflected in the protocols oE the World Conference on Education for All (EFA) inJomptien (Thailand) in 1990 and at the World Education Forum in Dakar (April, 2000), where the international community observed that ten years after Jomptien, not much progress had been made, especially in the quality o f education in Africa. In this context, Guinea-Bissau adopted the Dakar Framework for Action, EFA in2000. 1. Situation of the Education Sector. Guinea-Bissau i s characterized by low adult literacy rates with striking differences based on gender, the area o f residency and. other socio-economic considerations. Enrollment inprimary education i s also influenced by factors such as location, gender, and economic status. Enrollment rates tend to be higher in Bissau- where households are closer to primary schools -- compared to other regions. Gender differences in enrollment rates for primary education are also quite noticeable. Enrollment for boys inprimary school i s estimated at 66 percent, which is on average 9 percentage points higher than that o f girls. In Bissau, about 2 percent o f children enrolled inprimaryschool dropped out and about 44 percent never attended. The main reasons for the drop out are issues related to child labor and early marriage (at the national level, about 32 and 29 percent o f children are not attending school for reasons associated with child labor and early marriage, respectively). 2. EFA and Basic Education Service Delivery and Utilization. The EFA initiative has contributed to increase public spending on basis education. During2002-04, there was a consistent increase inper capita public spending (unit cost) as a ratio o f GDP per capita for primaryschool students as well as for teachers inthe same cycle. The unit cost on students innominal terms increased from 5.6 percent o f GDP per capita in 2002 to 6.4 in 2004. Similarly, teachers' unit cost increased from 1.7 percent to 1.9 percent during the same period. The question, however, remains about the internal efficiency of EFA or its ability to retain pupils in the school system and ensure an orderly transition in the secondary education system. In fact, many children drop out o f school before they have achieved the necessary skills to function as literate individuals. The primary and secondary levels o f education appear to be the largest recipients o f public spending, while allocations to tertiary (excluding spending on student studying abroad) and pre-school education are considerably smaller. This finding seems to indicate that while resource allocation inthe primary and secondary education i s not a concern, at least at the macro level, there is a need to improve the efficiency o f spending in the various programs within each level. There i s also a need to create a bridgingor transition mechanism between the primary and secondary levels. For example, providing income subsidies to families with school-age children and better training and higher salaries for teachers may contribute to limit dropout rates, improve the quality on education, and ensure an orderly transition from primary to the secondary levels o f education. 3. EFA and Equitability of public resource Allocation to Schooling. The analysis o f the 2002 survey data shows that basic education has the best targeting xxi coverage compared to the other levels o f education: about 60 percent o f primary school allocations going to the poor, it i s the only level o f education that i s best-targeted to alleviate poverty. B. User Fees (UF) and Health Service. Guinea-Bissau prepared the PNDS, which covered the periods 1997-02 and 2003-08, and adhered to the Bamako Initiative' (BI) inthe early 1990s. In2002, the Government adopted a law for the implementationo f UFinpublic sector healthcenters andhospitals. 1. Situation of the Health Sector Prior to the Adoption of UF. The demand for health services remains high, particularly inrural areas. According to the 2002 survey data, the majority o f patients who sought modern professional health care in Bissau and other regions visited private clinics and regional health centers, respectively. Contrary to expectation, traditional healing centers do not seem to be patronized by a significant number o f people. `The poverty decomposition o f those who use these healthcare providers shows that the highest percentage o f poor people and the extreme poor use the services o f non professional health providers, and traditional healing facilities and pharmacies. In the particular case o f malaria, more than 50 percent o f patients sought treatment from non-modem healthcare providers. The non frequentation o f modemhealth services may partly be explained by the lack o f income. However, that o f the rich may signal other factors such as the lack o f malaria drugs and other malaria-relatedhealth care supplies inmodernpublic health care facilities. Access to and satisfaction with health service i s generally limited. In2002, about 37 percent o f the poorest households had access to health services compared to 46 percent for the wealthiest. Consequently, the rate o f usage o f medical services was only 9 percent for the poor, as opposed to 19 percent for the rich. At the same time, a large proportion o f households were dissatisfied with public health services. For example, more than 80 percent o f the residents o f Gabu had a bad experience with their medical facilities, and the issues most o f them were concerned with were the cost o f treatment and- the availability of drugs. 2. Implementation of UF and Impact on Health Service Delivery and Utilization. Inrecent years, public sector health expenditures have declined in Guinea- Bissau to the point where nearly all Government funding went to salaries. In the early 1 9 9 0 the country adhered to the BI. However, manypatients were informally paying for ~ ~ health services `under the table'. Recognizing the difficulty to cover the recurrent cost of the health system, the authorities recently passed a law introducing UF. The law on UF- was a means of legalizing this practice and providing more transparency and efficiency in the collection and use o f UF. The new system was considered a viable solution because Guinea-Bissau has already successfblly implemented the BI (fees for drugs). It i s important to understand the dynamic underway in Guinea-Bissau, because UF have always discriminated against the poor. UF are being collected and managed at the facility level in a fairly transparent manner. Since 2002, Guinea-Bissau's new cost-recovery system includes the recovery,of- drug fees (also coveredunder the BI), and charges for outgoing visits, lab tests, and other xxii medical visits. So far, the resources are being collected and managed in a relatively transparent manner. Revenuesat the level o f the facilities are managed by a management committee composed o f the facility's staff and representatives o f the civil society. The UF system is being carried out in all the 127 health facilities at the national level. In 2004, the amounts collected per region were within the range o f CFA 6 to 33 million (about US$ 12,000 to 66,000). The total cost recovered in 2004 represented about 5 percent o f the health sector budget. On average 30 to 60 percent o f the resources collected were primarily used to pay for drugs and other maintenance costs. The remainder of the resources served for the payment o f incentives to the personnel (20-30 percent) and the constitution o f reserves (10-40 percent). In limited cases, 10 percent of the resources were transferred to the Regional HealthDepartment. Although the initiative is recent, overall, it has contributed to improve the availability o f drugs and the access to health services at affordable costs. Improved birth attendance and immunization coverage have contributed to significantly decrease child mortality. and in recent years to improved prenatal health care for women. However, as turn-out rates are gradually increasing, health facilities would need to be adequately equipped in order to meet the surplus demand. It is therefore critical that the authorities accelerate the implementation o f the ongoing reform program in the context of the `Programme National de DCveloppement de la SantC (PNDS)', train additional medical staff and buildhousing facilities for medical personnel inrural areas. C. Conclusion and Policy Considerations. While the EFA initiative has contributed to increase enrollments in primary education, there remain high risks about the retention o fpupils inschool. Moreover, there are uncertainties about the sustainability o f the EFA because major external supports are ending, while the Government is still not ready to auto finance the program. With the ongoing support o f the Bank and other donors, the health sector would have the much neededboost, ifthe reform agenda agreed upon inthe context o f the PNDS i s carried out. xxiii VOLUME11:CONFLICT,LIVELIHOODS POVERTYINGUINEA-BISSAU AND 1. Conflict,Livelihoodsand Povertyin Guinea-Bissau:A BriefOverview This second volume o f IPSA seeks to analyze the impact o f conflict and vulnerability on growth and poverty in Guinea-Bissau. As stressed throughout the first volume, conflict and political instability have considerably weakened the country's productive tissue. This situation increased the degree o f vulnerability o f the population - mainly in rural areas where most o f economic activities take place - and hence impeded economic growth. Consequently, per capita incomes deteriorated significantly, thereby increasing poverty. This volume provides a background analysis o f a number o fthemes derived from the first volume. The remaining five chapters are organized as follows. 2. Conflict,GrowthandPovertyin Guinea-Bissau Conflicts have had a devastating impact on the economies o f affected countries in Sub- Saharan Africa (World Bank, 2000a). InGuinea-Bissau, conflicts and political instability have been the main constraints for growth and poverty reduction over the past three decades. This first chapter measures the impact o f the conflict on per capita GDP in Guinea-Bissau. This is done using a technique for the identification and correction o f outliers intime series that was developed by Tsay (1986, 1988) and Gomez, Maravall and Peiia (1997), and applied to the assessment o f the impact o f conflicts on GDP per capita inSub-Saharan African countries including Guinea-Bissau by Lopez and Wodon (2005a, 2005b). The estimates suggest that GDP per capita would be roughly 42-43 percent higher today if the conflict had not occurred. Inturn, assuming that the conflict has had no impact on inequality (we don't have any data on these potential impacts), we find that about one third o f the population now in poverty can be said to be poor because of the conflict itself. 3. Institutions,Social Networksand Conflictsin Guinea-Bissau:Resultsfrom a 2005 Survey Guinea-Bissau has suffered from a major conflict in 1998 and from persistent political instability since independence. This second chapter provides results from a recent survey that gives insights into the opinions o f the population among others about changes in well-being over time, trust in various institutions, sources o f conflicts at the local level, and ways to deal with conflicts. There is a clear perception among the population that there has been a deterioration inwell-being as a result o f the conflict, as well as a lack o f improvement since then at least for the poor who are highlyvulnerable. The data suggest an increase in the lack o f security after the conflict, or again at least no clear sign of. improvement. The population has little trust innational institutions such as the army, the police, the judicial system, and the central government. Local conflicts often emerge due to the competition for scarce productive resources, but poorer households deal with these conflicts in a different way thanwealthier households. xxiv 4. Povertyandits DeterminantsinGuinea-Bissau Given the poor economic performance o f Guinea-Bissau over the last few years, including a severe recession towards the end o f 2002, poverty is likely to be high and to have risen in recent years even versus its already high post conflict level. This third chapter estimates the share o fthe population inpoverty in2002, predicts how it may have evolved since then, and assesses the levels o f growth that will be required in order to reduce poverty measures in the future. It also provides a brief poverty profile and an analysis o f the determinants o f poverty using the 2002 nationally representative survey which was recently made available for analysis. Geographic location, demographic structure (both household size and headship), employment (both in terms o f sector and type), education, andmigration all have potentially large effects on the consumption level andthereby poverty o fhouseholds. 5. Livelihoodsin Guinea-Bissau Standards o f living have historically been low, and the conflict that took place in 1998 had a very large negative impact on GDP per capita and thereby on poverty, as discussed in the first chapter. This fourth provides an analysis o f the modes o f livelihood o f Guinea-Bissau's population. The country i s poor and highly dependent on agriculture and extractive activities such as fishing. Yet beyond such general statements, it i s useful to describe inqualitative terms the main activities that take place both inrural areas at the regional level, and inurbanareas through mostly informal employment. This is done on the basis o f field work carried in the country in early 2005. In addition, the paper provides a brief quantitative empirical analysis o f the main income sources o f households, and a more detailed analysis o f two key sectors o f the economy that could form the basis o f a pro-poor growth strategy: the cashew nuts sector, and the fishing sector. 6. Cashew Production,Taxation, and PovertyinGuinea-Bissau Agriculture i s the engine o f Guinea-Bissau's economy. The sector relies mainly on cashew nuts, rice and subsistence production o f food crops. Cashews represent 90 percent o f the country's exports and the principal source o f income inrural areas. Unfortunately," cumbersome administrative arrangements, weak legal systems and an absence o f credit often lead to hightransaction costs for cashew buyers and exporters, which contribute to decrease the farm gate price o f the raw nuts. This fifth chapter provides a review o f the cashew sector in Guinea-Bissau, as well as estimates o f the likely impact o f changes in farm-gate prices and export taxes on poverty among cashew producers and inthe country as a whole. The chapter also notes that over the last three decades, the production o f rice has significantly decreased in favor o f cashew farming. This situation represents a threat to food security. For the rural sector to ensure food security and create new jobs, policy- makers would need to adopt a coherent agrarian development strategy in the context o f the PRSP, which would aim at rehabilitating and encouraging rice production, and also promoting the processing o f raw cashew into exportable cashew kernels, in order to generate more value added inthe cashew sector. xxv 1. INTRODUCTIONTO VOLUMEI A. BACKGROUND LINKWITH THE PRSP AND 1.1 Demographic Context. Guinea-Bissau is about the size o f Maryland, located on the Atlantic coast o f West Africa. Current estimates' suggest that the total population is about 1.5 million inhabitants, o f which 66 percent i s rural. Population dynamics and trends (migration and growth) are difficult to describe given the lack o f actualized data and the conflict that the country experienced in the late 1 9 9 0 ~ .Population growth rate ~ has remained almost constant at 2.4 percent from 1970 to 2000, and estimates for the period 2000-2004 suggest a growth rate o f 2.0 percent (U.S. Census Bureau 2005). The population i s unevenly distributed across regions. Bissau concentrates about 25 percent o f the population, followed by Oio (14.6 percent), Bafata (13.8 percent), Cacheu (13.8 percent), +Quinara(4 percent) and Boloma-Bijagos (2.3 percent) (UN2001). Over the last 15 years there has been a strong growth o f the urban population (5.1 percent per year).3 From 1975 (at independence) to 2002, the urban population grew from 16 percent to 44 percent (UN 2001). Rural-urban migration has speeded up over the last decade, concentrating the population on four main areas Bissau-Biombo, Cacheu, Bafata- Bamdadinca and Buba. Slum dwellers as a percentage o f urban population represent about 93 percent (SDStats, 2001).4 1.2 Guinea-Bissau has more than 20 different ethnic groups, with no group having an absolute majority. The five largest ethnic groups are: Balanta (28 percent), Fula (23 percent), Mandinga (13 percent), Manjaco (11 percent), and the Pepel (7 percent). The other 15+ ethnic groups represent about 18 percent o f the population. The urbdrural distribution o f the groups suggests that Balanta and Pepel are more concentrated inrural. areas, whereas the Manjaco, Fula and Mandinga tend to reside in urban areas. Most o f the population is Muslim (40 percent) - mainly drawn from the Eastern groups such as the Fula and Mandinga - or Animist (37 percent), followed by Catholics (17 percent), and other religions (6 percent). 1.3 Over 60 percent o f the population is less than 24 years old (see Table 1.1) and 41 percent is under 15 years old.5 The estimated population under 15 years old in 2002 was 47.1 percent, which is the 6th highest in the world after Uganda, Niger, Mali, Burkina. Faso and Yemen. Recent data from a micro household survey in Guinea Bissau6suggest 'The last population census was conducted in 1991. Current estimates are based on census data and electoral cadastre. Figures by U.S. Census Bureau(2004) Some 300,000 to 350,000 people were displaced as a result of the 1998 conflict. Most of them have returned to their homes. According to the InternationalOrganizationfor Migration (IOM) the demobilization,reinsertion and reintegrationprogram is in its last phase. To date, amongthe 7,182 beneficiaries, 2,406 have already beenreintegratedand 2,031 are expectedto be reintegratedby June 2005. (UN31/03/2005 Security Council 5157" Meeting (PM) PressRelease SC/8350). This growth has been fueled by the lack of employment opportunities in rural areas and, in the late 1990s, due to the displacement. causedby the war. The rapid urban growth has dramatically increased urban density and pressure over an almost inexistent urban infrastructureand public services(UN2001 and UNDP 2001). USCensus Bureau,2005 (htto://www.census.eov/cgi-biniiuc/idbsum.ol?ctv-PU). The survey was carried out betweenMarch and May 2005. The sample size was 446 households. The sample was selected following apurposive sampling strategy coveringall regionsof the country (North, East, South, Islandsand Bissau). Ineach region provinces were selected. Ineach provincewere selectedthree localities(1urban and 2 rural) on the basis of ethnic, ruravurbanand similar trends. The dependency ratio is 0.91, above the average for Sub-Saharan (0.88) and Low Income countries (0.71). Table 1.1: PopulationDistribution(percent) by Age and Sex in 2005 Datafrom US CensusBureau Datafrom INEP/JBN/WB Age Cohort Total Male Female Total Male Female 0-14 41.5 42.7 40.5 39.6 41.5 37.0 15-24 20.2 20.6 19.6 22.5 22.6 22.3 25-59 33.5 32.7 34.4 32.5 29.9 35.3 60+ 4.8 4.1 5.5 5.4 5.4 5.4 Source:US CensusBureauand the 2005 QS 1.4 Total fertility rate (births per women) estimated at 7.1 (UNDP 2003), i s the third highest in the world (after Niger and Angola), well above the average for Sub-Saharan Africa (5.4) and least developed countries (5.1). Women start their reproductive life very early. On average women enter into a family union at age 16 and men at 20. One out o f five women 15 to 19 has a child (UNFPA 2003).7 Prevalence o f contraceptive use among women 15 to 49 i s low, reaching only 4 percent (UNFPA 2003). 1.5 Economic Context and Link with the PRSP. The country is one o f the poorest- in the world, ranking 172nd out of 177 nations on the United Nations Human Development Index o f 2004. Guinea-Bissau's state o f development is characterized by low per capita income (US$140 in 2003)8 and high illiteracy rates (above 60 percent). According to the 2002 light household survey (ILAP),about two-thirds o f the country's population lived in poverty, with three-fourths o f the poor residing in rural areas and practicing agriculture. Following the 1998 military conflict, instability has become a major constraint for good governance, growth and poverty reduction in Guinea-Bissau. After a slight recovery o f 1999-00, the country's macroeconomic and fiscal situation sharply deteriorated throughout 2001-03 as a result o f lingering political instability and ineffective public policies. In this context, restoring sociopolitical stability, pursuing reforms and adjusting the macro economy are critical for enhancing poverty reduction and growth. The country completed its interim Poverty Reduction Strategy Paper (PSRP) in 2000, and subsequently launched the preparation of the full PRSP which has been repeatedly delayed. The Government prepared a draft PRSP in2004, which i s expected to be finalized soon. As a core element o f the Bank's analytical work, IPSA is intended to support the Government's reform agenda inthe context o f the authorities' PRSP. agro-ecologicalcriterion. In Bissau (SAB), 2 neighborhoods(Hhfia and Belem) were selected. Intum, ineach of the 16 communities selected, arandomsampleof approximately 30 householdswas selected. 'According to UNFPA (2004), the rate of teenage pregnancies inGuinea Bissauranks 8" inthe world, after Niger, Congo DRC, Angola, Liberia, Somalia, Sierra Leone and Uganda. The averagerate for leastdevelopedcountriesis 124/1000,Western Africa 119/1000; all Africa 107/1000.Understandably,fertility is highbecause of the early age of first pregnanciesand very low use of contraception. WDI, World Bank (2004). - 2 - B. DATA AVAILABILITY AND EXISTINGSTUDIES 1.6 IPSA relies heavily on the data o f the 2002 Light Household Survey' (ILAP),and the 2005 QS. The latter was conducted during March-May, 2005 as part o f the preparation o f IPSA. It collected qualitative information on households' livelihood means and perception o f poverty and the quality o f basic education and health service delivery. Besides survey data, the report also relies on macroeconomic information from the fiscal and national accounts data produced by the authorities and the Fund. The macro data are final for past years till 2004, preliminary for 2005, and projectedsimulated for 2006-08. Other data have been provided by the Ministries o f Agriculture, Education and Health. IPSAtakes stock o f existing analyses such as the Civil Society Assessment Tool (CSAT) prepared by the Bank in 2004, and the Government study" on the cashew sector carried out with the support o f the Bank and the United Nation Food and Agriculture Organization (FAO) in2004. 1.7 IPSA'S poverty analysis has been significantly constrained by household data limitations. For example, the 2002 ILAP survey, which i s the core data o f the analysis, does not provide detailed information on households' income and expenditure in key agricultural activities such as cashew and rice production. Moreover, the light design o f the survey does not allow comparability with the 1991 Full Fledged Household Survey (ICOF) data. As a result, attempts to perform poverty dynamic analysis have been abandoned. This fact underscores the importance o f broadening the scope o f the next household survey and aligning the methodology with that o f the 1991 survey to allow performing dynamic poverty analyses. C. THEANALYSIS 1.8 Rationale.Guinea-Bissau is a Low Income Country Under Stress (LICUS) with weak institutional and governance capacity, and widespread poverty. Over the past years, persistent political instability contributed to weaken the State's capacity to promote economic growth and deliver social services to the population. Inthis context, there i s an urgent need to: (i) reinstate the basic hnctions o f the State inthe short-term (payment of public sector salaries, delivery o f education and health services, and rehabilitation of minimum water and electricity services); and (ii) out a major fiscal adjustment carry reform and promote the diversification o f agriculture in the mediudlong-term. While pursuing these objectives, the Government will need to demonstrate strong commitment to reform so as to mobilize the much needed external support. Finally, given the trust that exists inCSOsKBOs, the Government would gain ininvolvingthese organizations inthe- delivery o f social services. 1.9 Objective and Content. IPSA is the first poverty assessment for Guinea-Bissau since the 1998 conflict. The main objective o f the report i s to build knowledge on the interconnections between socio-economic and institutional factors, instability, poverty and growth. The analysis seeks to inform macro level policy dialogue and to improve the The 2002 ILAP survey was sponsoredby the DutchGovernment and the Bank. 10Jeager andLynn(2004). effectiveness o f development interventions at both policy and program level by focusing on policies aimed at removing systemic differences in opportunities between social groups. It also seeks to mitigate risks and constraints to development arising from such practices and enhancing macroeconomic and fiscal stability and social service delivery, while enhancing sociopolitical stability. The remainder o f this first volume i s structured in five main chapters dealing with the following issues: (i) institutional context o f the post-conflict period; (ii) poverty analysis; (iii) macroeconomic and fiscal policies for' promoting sociopolitical stability and growth; (iv) making agriculture more productive and sustainable for poverty reduction; and (v) making education and health care more affordable for the poor. The rationale behind the core issues and how they fit in the structure o f the report is briefly outlined below. 1.10 Political Economy and Institutional Context o f the Post-Conflict Period (chapter '2). This chapter takes stock o f the political economy o f the country that may help understand its current state o f institutional fragility and political and macroeconomic- instability. It analyzes the interconnections between the country's history o f conflict and instability and its sociopolitical development after the 1998 civil conflict. Particular attention i s paid to security and landissues, which represent potential risks o f conflict and instability. 1.11 Poverty Analysis (chapter 3). This chapter presents an in-depth analysis o f the socioeconomic profile and determinants o fpoverty usingthe 2002 ILAPand the 2005 QS data. The findings suggest that the incidence o f poverty remains relatively high and- concentrated in rural areas. About two-thirds o f the population i s living below the national poverty line. Moreover, wage earners (in the public and the private sectors), literate people and those with easy access to infrastructure, utilities and basis social services bear a lower poverty incidence compared to others. The finding also confirmed that vulnerability i s relatively high in rural areas, and the country lost significant growth opportunities as a result o f the conflict. 1.12 Macroeconomic and Fiscal Policies for Promoting Sociopolitical Stability and Economic Growth (chapter 4). This chapter reviews recent economic performance, and explores policy options for preserving sociopolitical stability in the short-term and promoting fiscal adjustment and macroeconomic stabilization and growth in the mediudlong-term. As policy reform in a fragile institutional context is by definition politically difficult and requires a piecemeal approach, the report stresses the need to: (i) pursue essential expenditure programs in order to preserve social and political stability in the short-term (paying salaries, delivering social services, improving living conditions in military barracks, rehabilitating basic utility services); and (ii)implement a major fiscal. consolidation (reducing the wage bill in non-productive segments o f the public administration in the context o f a PSR program) and structural reforms in the security sector (reducing the size, balancing the ethnic composition o f the army) in the medium- term. 1.13 There are indications that the reduction o f wage expenditures i s likely to spur growth. However, this effect may be overstated given the country's weak institutional capacity. The findings also suggest that fiscal consolidation relying solely on a reduction' - 4 - o f the wage bill (compatible with the economy's absorption capacity) will not be sufficient to restore medium-term fiscal sustainability. The report therefore recommends that additional efforts be made to improve the efficiency o f revenue collection, while pursuingsound expenditure control. 1.14 Making Agriculture More Productive and Sustainable for Poverty Reduction (chapter 5). This chapter reviews the main challenges and opportunities in agriculture, and assesses the impact o f lower transactions costs on income generation and poverty reduction in the cashew sector. A particular attention is paid to the need to diversify agricultural output through the processing o f cashew nuts and the promotion of tropical fruit productionand export. 1.15 Making Education and Health Care More Affordable for the Poor (chapter 6). This chapter assesses the effect o f the Government's free basic EFA and health UF (UF) programs on social service delivery in the public sector. In the area o f basic education, the report shows that while the EFA initiative has contributed to improve public spending and enrollment rates, there are uncertainties about the sustainability o fthe initiative. With regard to the UF system, the report reviews the cost recovery system and assesses the effect o f UFon health outputs since its inception in2002. Overall, the UF system i s being implemented and managed fairly well. Resources recovered are being usedto renew drug inventories, and pay salaries and incentives to the personnel o f the health facilities. 1.16 State capacity -- the authorities should consider establishing social development funds to Finally, in order to improve education and health services -- in the current weak support these initiatives. Given the relative strength o f the civil society in delivering social services, the management o f these funds could be entrusted to CSOs and NGOs with the supervision o fthe authorities. - 5 - 2. INSTITUTIONALCONTEXT OF THE POST-CONFLICT PERIOD Since the independence of Guinea-Bissau in the early 1970s, conflict and political instability have represented the main obstacle to good governance, poverty reduction and growth. The armedforces have been ojien at the center of thisprocess, and still remain a major factor of instability as evidenced by recent coups and mutinies. Despite democratic elections in 1999/2000, 2004 and 2005, the orderly transition to constitutional rules remains elusive due to frequent interventions of the military in political afairs. The military allegedly lack adequate dwelling place and sanitation conditions. Moreover, the predominance of one ethnic group in the army represents a major risk of ethnic conflict. Preventing further military-related instability would require addressing these issues in the context of a comprehensive SSR. Beside military-related conflicts, the absence of a formal regulatory framework for the attribution and use of land represents another major source of civil conflicts. 2.1 Conflicts and political instability have been the main constraints for sustainable institutional development inGuinea-Bissau over the past three decades. Rather than being massive and pervasive, conflicts and instability have become cyclical events confined mainly in the capital. While often not causing significant physical destruction, the continued instability, however, has been detrimental to institution building and has not produced an environment conducive to investment, growth and poverty reduction. As many as six major military-related incidents concerning political power have taken place since independence in 1974. Thereafter, the country experienced two decades o f a State- controlled system before organizing its first democratic elections in 1994. The fledgling democratic process was disturbed by the 1998 civil conflict and the state o f political instability that prevailed after the war. In late 1999, early 2000, the second set o f democratic elections brought to power a civilian Government. However, the democratic process stalled as the elected Government failed to restore political stability and good governance. Following several cabinet reshuffles, alleged coup attempts, and the dissolution o f the Parliament during 2001-2002, the military staged a bloodless coup d'ktat inSeptember 2003, and a civilian transition Government was charged with the task o f restoring order and rebuilding the public administration. Since mid-2004, the authorities made significant progress in restoring fiscal discipline despite the highly polarized and still fragile political environment. Guinea-Bissau remains also vulnerable to social risks o f instability related to land use and ownership as the country lacks an adequate legal and regulatory framework for land. The remainder o f the chapter will successively: (i) the institutional context o f the post-conflict period; (ii) review analyze governance issues; (iii) discuss the main factors behind the current governance problems; and (iv) discuss the issue o f conflict prevention through a reform o f the security sector and landregulations. - 6 - A. A LONG HISTORYPOLITICAL INSTABILITY OF 2.2 Guinea-Bissau has experienced a long history of conflict and political. Following a decade-long freedom war with Portugal, Guinea-Bissau became independent in 1974. The government of the first President, Luis Cabral, was later overthrown in a bloodless coup led by Prime Minister and former Armed Forces Commander Joao Bemardo (Nino) Vieira in 1980. There were several coup attempts against the Vieira government in 1983, 1985, and 1993. In 1994, the country's first multi-party legislative and presidential elections were held. President Vieira o f the ruling Party for the Independence o f Guinea-Bissau and Cape-Verde (PAIGC) was re-elected with a slight margin over Kumba Yala o f the Party o f Social Restoration (PRS). An army uprising against the Vieira Government in June 1998 triggered a bloody civil war that displaced over 300,000 members o f the civilian population. Failed governance, breakdown o f the rule o f law, and limited accountability and transparency o f public sector management were among the causes o f the conflict that lasted nearly a year. 2.3 Following the conflict, attention was turned to the task o f reconciliation and rehabilitation. By June 1999 the situation, although still fragile, calmed down and improved steadily. A Government o f National Union (GNU) was put in place and charged with the task o f preparing the NRRP and organizing elections. Free and fair parliamentary elections were held on November 28, 1999, and a presidential runoff vote took place on January 16, 2000. Opposition parties scored a landslide victory in both elections. Elected President Koumba Yala o f the PRS took office on February 17, 2000. Shortly after, a Cabinet o f broad coalition including members o f various parties represented inthe National Assembly was appointed. 2.4 The task o fnational reconciliation andreconstructionwas underminedby the lack o f political consensus. Following the elections, the Parliament approved a new constitution in April 2001,which was neither vetoed nor promulgated by the President. The resulting ambiguity undermined the rule o f law, and a prolonged friction developed between the executive and the legislative branches o f the Government over the choice o f the new cabinet chief. As a result, the country practically operated without an effective government for several weeks, and the announcement o f yet another foiled coup attempt. inmid-April2001 demonstrated once again the fragility of the political and democratic processes. The prevailing political instability, which affected all institutions, was no more conducive to economic recovery and post-conflict reconstruction. InDecember 2001,the Government allegedly thwarted a coup attempt by army officers. 2.5 Delays in holding parliamentary elections led to a military coup and the appointment o f a transition Government in September 2003. Between December 2001 and December 2002, President Yala carried out two cabinet reshuffles, dissolved the, Parliament, and called for legislative elections, which were repeatedly postponed. The ensuing discontent among the population led the army to seize power in a bloodless manner in September 2003. President Yala announced his "voluntary" resignation and was placed under house arrest. The military, led by the Chief o f Defense General - 7 - Verrisimo Seabra," quickly restored power to civilian control, and a civilian caretaker government was appointed with the objective o f restoring the rule o f law and reasserting control over public finances. Inthis context, the businessman Henrique Rosa was sworn in as Interim President, with the support of almost all political parties and the civil society. By end-2003, the newly appointed Government preparedthe EEMP and a budget for 2004 with the support o fthe international community. 2.6 Parliamentary elections were successfully organized in early-2004 and the post-election Government endorsed the EEMP reform agenda. Legislative elections were held in March 2004 and an orderly transition to a Government elected on the basis o f a broad reform platform took place in M a y 2004. The transition government, led by the leader o f the PAIGC Carlos Gomes Junior, was appointed with the objective o f ensuringthe functioning o f the public administration and preparing presidential elections by mid-2005. Despite the difficult economic situation, the Government prepared a draft o f the country's PRSP and significantly improved budgetary discipline duringthe second half o f 2004. The Government also endorsed the reform program agreed with the international community under the EEMP, prepared the 2005 budget and successfilly organized free, fair and transparent presidential elections won by the independent candidate and former President Joao Bemardo (Nino) Vieira.12 2.7 The recent presidential elections that took place inJune and July 2005 brought to an end the transitional arrangements that had beenput inpace since the ousting o f former President, Kumba Yala, in September 2003. They were also meant to put an end to the post-conflict transition that began after the civil war o f 1998-9 and bring a return to constitutional and democratic rule in Guinea-Bissau following years o f political instability and administrative chaos. While the elections themselves were free, fair and transparent, the presidential campaigns and the immediate period following the elections were marredby fear and uncertainty amongst the country's population. President Vieira, however, aware that the legacy o fhis rule from 1980 to 1999 had made his reelection this year controversial and divisive, has so far tried to counter these fears by continuing his electoral campaign platform o f reconciliation and national unity, promising to uphold the law, modernize the economy, defend freedom o f expression and reform the m y . H e has also confirmed that he i s willing to cooperate with the current government and Prime Minister, despite the ruling party's previous attempt to have his victory annulled. Vieira also seems to have gained the support o f the military, with Armed Forces Chief o f Staff, Baptista Tagme N a Wai, and Navy Chief o f Staff, Bubo N a Tchuto and Aniceto N a Fla, all pledgingtheir support to the country's democratically elected civilian leaders. 2.8 Nevertheless, the return to electoral democratic rule still leaves many issues unresolved which will continue to plague the political situation in Guinea-Bissau. Ultimately, many o f the causes underlying the political instability and insecurity which has defined Guinea-Bissauduringthe last 7-8 years still remain. "GeneralSeabrewaskilledalongwithotherofficersduringtheOctober6,2004 mutiny. '*Thefirst roundpoll opposedseven candidatesincluding three former Presidents:Malam Bacai Sanha of the PAIGC, independent candidateJoao Bemardo(Nino) Vieira, and KoumbaYala of the PRS. The secondroundpoll opposed Sanha and Vieira. The latter was declaredwinner in the second roundof votes with 52 percent of the votes, with a strong backingfrom Yala's supporters.Eight team of internationalobservers, including an 80-strongmission from the EuropeanUnion (EU), issued ajoint statement saying the first and secondroundpolls hadbeen "free, fair and transparent". - 8 - 2.9 An immediate cause for concern relates to the current constellation of, and competition for, power between the executive and the legislative. Although an immediate dispute between Nino and the majority ruling-party PAIGC over the electoral outcome has been overcome, tensions between the President and the Prime Minister, Carlos Gomes J6nior will remain [as a political analyst recently remarked, "with Gomes seeking to limit Nino's powers and prerogatives, and Nino seekin to undermine the premier's position within the PAIGC - the party Nino once This situation has been further complicated during the electoral campaign by an increasingly visible split within the PAIGC, between on the one hand, its leadership, many o f whom refuse to recognize Vieira's victory and insisting the official PAIGC candidate, Malam Bacai Sanha, was the rightful winner, and, on the other hand, other party members - mainly drawn from the "old guard" who are still committed to their old party leader. 2.10 The political situation remains highly volatile in the aftermath of the presidential elections. In end-October 2005, President Vieira dismissed the PAIGC Government o f Prime Minister Carlos Gomes Junior. In early-November, the President swore in a five-party coalition government ledby PAIGC dissident Aristides Gomes. The PAIGC continues to claim the legitimacy o f the new cabinet while several parliamentarians are believed to have defected from its rank. A session o f the National Assembly to be held inDecember 2005 is expected to review the Government's program, and determine whether it has the support o f Parliament. 2.11 Despitethe President'spledgesto buildnationalunity, this fierce competition over power reflects a lack of unity between the different political groups in the country. Political power in Guinea-Bissau is concentrated in an executive subject to limited checks and balances from weak democratic institutions. The state also retains main control over access to the majority o f resources in the country. As a result, the stakes are high for the presidency and key political positions, undermining efforts at building national unity in a country with more than 20 different ethnic groups, rife poverty and great disparities between people. The lack o f mechanisms for social and political accountability and representation extending beyond the capital o f Bissau to the regions where the majority o f the population resides further exacerbates this problem. 2.12 Recurrent military interventions on the political scene, as experienced in recentpast, still remaina threat to stability and democracy.So far, the military have kept their promise not to intervene in the political process during and after the presidential elections. However, the widespread poverty in the barracks, an inflated, unpaid m y often sharing popular discontent, and the highly polarized political environment remain ingredients for future interventions o f the military. Moreover, Guinea-Bissau's army remains highly ethnicized as the majority o f soldiers are from the BaZante ethnic group. Inorder to prevent further instability and conflict, there is a critical need for reforming the security sector as discussed below insection C o f this chapter. 2.13 Despite the recent elections, there i s much to be done before Guinea-Bissau will complete its post-conflict transition. Perhaps most importantly, the state continues to lack l3hid. - 9 - legitimacy and credibility amongst most members o f the population. This is due to a variety o f factors, particularly its continued inability to provide basic services and infrastructure, particularly outside o f the capital o f Bissau, and the perceived persistence o f corruption and mismanagement in the public sector. This suggests that the volatile nature o f the process o f political transition in Guinea-Bissau i s at its roots merely a reflection o f a much deeper problem o f governance, which will be discussed in greater detail below insection B. B. A HISTORY WEAK GOVERNANCE ACCOUNTABILITY OF AND 2.14 The relative lack of transparency poses a major risk of corruption in public affairs.InGuinea-Bissau, boundaries betweenthe public andprivate sectors are often ill- defined. There is clearly an overlap between political, economic and civic spheres o f power. For example, many o f those engaged in national politics, including some high- ranked civil servants, are also from the private sector and together control large segments o f the economy. While this may be merely a reflection o f the size o f the country, and the scarcity o f capacity, it i s important to understand how this overlap o f personas and responsibilities relates to ethnic differences, the question o f the autonomy o f the State, and the division o f the public andthe private spheres. While this is not necessarily inand o f itself a problem, it underscores the need to establish a clearer separation o f powers, as well as improved systems o f transparency and accountability. 2.15 The lack of confidence in the Government may contribute to decrease the public's incentiveto pay taxes and support the Government's policies.Ifthe popular confidence in the government continues to erode, citizens' willingness to pay taxes or support the Government's reform policies will falter as well. Public perception of different institutions confirms that local level institutions are more trustworthy than central or local governments, the military or political parties. Moreover, taxpayers will be less willing to "contribute" if there i s the presumption that the Government will not use the resources collected for due purposes. The alleged Government response to this relative absence outside o f Bissau (and even inpoorer areas within Bissau), has been to suggest that rather than being a provider o f services, the State should instead become a ' promoter and a coordinator o f services de1i~ery.l~This approach risks being unresponsive to the needs o f the poor and if implemented as a strategy could provide an excuse as well as ajustification for the relative absence o f the State. 2.16 Despite recent progress, the financial accountability system remains relatively weak. Following the 2004 parliamentary elections, accountability mechanisms have somewhat improved as evidencedbythe timely preparation o f the 2004 and 2005 budgets by the executive power inend-2003 and end-2004, respectively, and their approval bythe Parliament. Moreover, the current executive power i s not interfering in legislative and judiciary matters, as it was the case during Yala presidency. However, major areas o f accountability and auditing systems require hrther improvement. The financial accountability system o f Guinea-Bissau i s composed o f the General Inspection o f Finance (IGF), which i s a financial control unit in charge o f the internal audit; and the 14Speech by Minister of Social Solidarity, CSAT Launch Workshop, December8,2004. - 10- Court o f Accounts (CC), which is an independent body incharge o f the ex-ante control o f public contracts and ex-post control o f public accounts. The IGF i s not hlly autonomous and does not have the means to ensure that its recommendations are implemented. The external audit system remains weak due to the lack o f qualified judges and the weak technical capacity o f the staff. The post-transition authorities would need to pursue the timely preparation o f annual budgets, and ensure adequate and timely auditing o f public accounts. 2.17 Despite improved access to media, mass disclosure of information on public accounts remains limited. Access o f civil society to general public information has somewhat improved with the increase o f programs broadcasted in the local dialect (Creole) in Bissau and the regions. There are more than two dozen radio stations and several newspapers throughout the country. Except for public radio andtelevision, all the other media are relatively independentfrom the political power. Despite this proliferation o f mass media, information on public accounts (resources allocated to line ministries and reports on budget execution) are still not widely made available to the public. The continued political instability and the limited institutional capacity o f the public administration are among the factor behind this problem. In 2001, the Government succeeded in producing the biannually budget execution report to the Parliament. It is critical that such effort be resumed andthe informationmade available to the public. 2.18 Recurrent instability has contributed to Figure 2.1: Selected Governanceand AccountabilityIndicators, 2004 undermine the rule of law and Government Control of effectiveness. While Corruption insome indicators of Rule of Law governance and accountability Regulatory Quality Guinea Bissau Government performs close to the Effectlveness average for Sub- Political Stability Saharan countries, rule o f law and Voice and Accountability I government 0 10 20 30 40 50 effectiveness are Dl SubSaharanAfrlca Liberia Niger Guinea Bissau among the lowest in the region (see Figure 2.1). Most state institutions have been incapable o f generating or commanding long term loyalties. In part this is explained by their lack o f capacity to deliver services and benefits. In addition, social and political leaders have established strong paternalistic relationships with their constituencies without reaching out or bridging to other social groups, and thereby without building broader coalitions or strengthening the legitimacy o f the existing state institutions. In the absence o f strong state institutions, the population has strengthened their local networks and has learned how to count on their own forces to search for solutions to their problems. Local - 11- institutions (from neighborhood associations to the local schools and the traditional authorities) therefore perform many functions (mutual help, leisure, collective security, conflict resolution etc.), some o f which could be handled by the state. While at the local level communities work together to resolve some immediate problems, the capacity to work together beyond the local dimension and to resolve differences in Guinea Bissau i s poor. Political risks and ethnic tensions are buildingup. Over the past 10 years there has been an increasing politization o f ethnicity, which has been conveniently used by self- serving leaders seeking to increase their legitimacy and power. As shown in Table 2.1 below, overall risk rating (ICGR 2005) for Guinea Bissau is below the average for Sub-- Saharan countries. Table2.1: Selected ICGRIndicatorsof Cohesionfor Guinea-Bissau,2005 Average Government Internal Military Religious Ethnic Risk Stability Conflicts Politics Tensions Tensions Rating Guinea Bissau 5.5 7.0 1.5 5.0 3.0 52.5 Sub-Saharan Africa 8.9 8.5 2.5 4.1 3.2 56.2 I Somalia (Worst) 7.0 4.5 1.o 3.0 2.0 26.0 Botswana (Best) 11.0 10.5 6.0 5.0 4.5 78.5 Source: ICGR2005 2.19 The public's perceptions of different institutions confirm that local level institutionsare consideredmore trustworthy than centralor local governments, the military or politicalparties. The analysis o f the 2005 survey's data shows that local schools and health posts are perceived as the most trustworthy institutions (see Table 2.2). Trust in schools and health posts is explained by the services provided by these institutions and the level o f participation that the community has in parent associations andhealthpost teams. This trust appearsto beparticularly strong inrural areas, where the local school and the health post are the only institutions that are present and have some legitimacy for the community. The judiciary, the police, religious organizations and traditional authorities benefit from much lower levels o f trust. It is worth noting that there are differences between terciles: among the poor, for example, trust in local institutions dealing with education and health as well as religious issues i s even stronger relatively speaking (Le., as compared to trust in other institutions) than among the better off. Indeed, at least some o f the better o f f tend to have higher levels o f trust than the very poor in NGOs, the justice system, and local government. In all three terciles, very few find that the police, the army, political parties and the central government are very trustworthy. There are also some differences between urban and rural areas as well: for example, trust in traditional authorities is higher among the rural population, while trust on NGOs i s more prevalent among urban dwellers. It is interesting to highlight these differences because they are related to the different roles these institutions have. Inurban settings trust inNGOs appears to be related to the role NGOshave inservice delivery and- access to goods and services (such as concession o f credit to the members, etc.) Trust in traditional authorities, while higher inrural areas, still i s low. This is partly explained by the fact that traditional authorities are perceived as controlling access to information and mediating the relationship with outsiders. At the same time, in rural as well as urban settings, there are multiple local, community based organizations that inspire trust and - 12- convoke people to participate and engage in activities that play an important role in the survival o f the community and the families. Table 2.2: Institutions That Are Trusted the Most by the Population in 2005 Tercile Area 1 2 3 Urban Rural Total lst mosttrusted organization (%) Religious organizations 12.21 5.65 9.3 8.78 9.32 9.11 Politicalparties 1.53 0 1.55 1.35 0.85 1.04 Local government 0 1.61 5.43 4.73 0.85 2.34 NGOs 6.87 0 17.83 15.54 3.81 8.33 Traditional authorities 2.29 4.03 1.55 0 4.24 2.60 Schools 42.75 37.10 31.01 31.76 40.25 36.98 Healthcenters 29.01 43.55 26.36 31.08 33.9 32.81 Amy 0.76 0 0 0.68 0 0.26 Police 2.29 1.61 0.78 0.68 2.12 1.56 Justice 0.76 4.84 6.2 4.73 3.39 3.91 Central government 1.53 1.61 0 0.68 1.27 1.04 All 100 100 100 100 100 100 ZUd mosttrusted organization (%) Religious organizations 7.27 3.54 13.4 11.5 5.8 7.8 1 Politicalparties 1.82 0.88 4.12 1.77 2.42 2.19 Local government 1.82 2.65 4.12 4.42 1.93 2.81 NGOs 0.91 0.88 6.19 4.42 1.45 2.50 Traditional authorities 6.36 5.3 1 2.06 0.88 6.76 4.69 Schools 30.00 38.94 23.71 28.32 32.85 31.25 Healthcenters 45.45 35.40 36.08 36.28 40.58 39.06 Amy 1.82 0 0 0 0.97 0.63 Police 3.64 5.31 5.15 7.08 3.38 4.69 Justice 0 6.19 4.12 5.31 2.42 3.44 Central government 0.91 0.88 1.03 0 1.45 0.94 All 100 100 100 100 100 100 Source: Staff estimation from 2005 QS. 2.20 The weak presence of the Government has been largely compensated by the active role played by civil society organizations. According to the Civil Society Assessment Tool (CSAT) beneficiary assessment, 86 percent of the population turns not to the State but to civil society organizations, to respond to their basic needs. In rural areas, this number tends to be above 95 percent. Moreover, expectations of the government as a service provider are quasi nonexistent, even among members o f the intellectual and organizational elite in Bissau." Since the early 199Os, the number o f NGOs operating. in Guinea-Bissau has increased significantly. Their various areas o f intervention included developmental activities aiming mainly to complement the State in social service delivery. While citizens generally consider NGO engagement a positive l5This shouldnotbeunderstood asthe incapacity ofthe authoritiestoaddresstheseneedsinatimely and sustainablemanner. The underlyingcauses o f such incapacity reside in the difficult economic situation, and the lack o f a well defined poverty reduction strategy. - 1 3 - contribution, their motives and willingness to involve communities i s sometimes questioned. Moreover, NGO-sponsored activities may only be short-term, and are often unpredictable. l6NGOs, on their part, are heavily dependent on scarce donor resources,. and often lack incentives to specialize, as well as financial ability to commit to long term investments. While this demonstrates an expression o f valuable social capital at the community level, the absence o fthe State is strongly felt. Figure2.2: GovernanceIndicatorsin2002 GUINEA-BISSAU (200 I I iovernnent Effectiveness ?egulatory Quality -I k Zule of Lau Control o f Corruption e1 I I 25 5e 75 Conparison betueen 2804, 2882, 1998 (top-botton order) Country's Percentile Rank (8-18B) Sourcel 0. Kaufmnn, A. Kraav, and tl. Harlruiri 20061 Gowmance tlattw. I V I Gguwnanc= Indicators f o r 19964604 ~ h t t r i / ~ . ~ r l d b a n k . e * q ~ i / q o u . * n a n c c / p u b ~ / s o u n r t t ~ r r t . h t n l I 2.21 To sum-up, existing indicators suggest that there is weak sense o f public institutions and nation state building in Guinea Bissau. The accountability o f formal institutions is rather limited and cohesion i s poor. Social capital functions at the local level to establish networks that contribute to achieve discrete goals o f various population groups, helping inthe provision o f services and the support o f livelihoods. Within those networks accountability i s higher and reflects the paternalistic nature o f the relationships between local leadership and the community or groups for which these leaders act as protectors and hinges or intermediaries with larger social institutions. However, at the national level, public institutions are not effective and have apparently failed to gain public credibility. At the same time there is an increased fracture or disarticulation between national level institutions and leaderships and local communities and their authorities. l6See MEP (2004), Civil Society Assessment Tool (CSAT) beneficiary assessment. - 14- c. FACTORS BEHINDTHEWEAK GOVERNANCE INSTITUTIONALDEVELOPMENT AND 2.22 The current weak governance problems are deeply rooted in the colonial past. Guinea-Bissau has been plagued by a history o f institutional weakness which preceded, and has to a large extent influenced, developments during the post-colonial period. The institutions and governance regimes put in place during colonial rule were primarilycreated for the purposes o f economic extraction, with a minimumo f emphasis and investments going into the development o f a productive base and provision o f social services and infra~tructure.'~Rural areas were left to be governed by traditional authorities, while a restricted concept o f citizenship was introduced inthe `modern' urban sector.l8Unlike other African colonies, Portuguese Guinea (the name o f Guinea-Bissau prior to independence), however, was not as successful at subjugating or co-opting traditional authorities in the rural areas. This was arguably the result o f a variety of factors including Portugal's own relative economic and military constrains as a colonial power, as well as the ability o f the rural civil society to partially disengage from the colonial State.lg State-society relations inPortuguese Guinea were, hence, at least inrural areas, characterized by a mixture o f exclusion and neglect on the part o f the State, and strategies o f avoidance and withdrawal on the part o f large elements o f Guinea-Bissau's society. 2.23 A culture o f informality developed during the colonial era. The vibrancy o f the informal economy during colonial rule showed the inability o f the colonial State in regulating key sectors o f the society.20 The informal economy duringcolonial rule, which i s to a large extent similar to the current situation, dominated trading activities in the country and with neighboring countries. In response to reportedly exploitative and disadvantageous terms o f trade in the regulated formal economy, commercial traders (cornerciantes and djilas) and producers reduced production, migrated and/or smuggled their goods instead o f selling them through the colonial State.21As a result, the majority o f the production and trade o f agricultural products bypassed the colonial government regulation.22Subsequently, a large part o f rural agriculture therefore remained outside the official economy, hence, leading to large tax evasions.23 2.24 Nowadays,traditionalauthoritiescontinueto play a leadinginstitutionalrole in local communities at the expense of the State. After independence, the one-party See Pelissier (1989), Forrest(2003), Rudebeck (1988; 1990; 1997; 2001), Lourenco-Lindell(2002: 51) Rudebeck (2001: 90-1). The development of the colonial State of Portuguese Guinea followed to some extent Mahmood Mamdani's thesis of the `bifurcated' State (Mamdani, 1996: 16-8), where the populationin rural areas were treated as subjects rather than citizens, who were subject to customary rule, rather than populations in the urban areas, that were granted limited forms of citizenshipand were controlledby the modem, colonial State. Mamdani argues that this bifurcated State continues to influenceState development and citizenship in postcolonial Africa. A similar argument has been applied in the context of Portuguese Guinea by Cardoso (1992) and Lourenpo-Lindell (2002: 55-59), using the distinction between `non-civilized' and `civilized', or `non- assimilated' and `assimilated' citizens, echoing the distinction between `subjects' and `citizens'. Rudebeck(2005: 149), Forrest (2003). 2o Forrest (2003) argues that the prevalenceof the informal economy in Portuguese Guinea,amongstother things, provides evidence of the significanceof `non-state socialspheres' during colonial rule. 21 Lourenpo-Lindell(2002: 52). 22 Forrest (2003: 225-6). Castro (1970: 347) estimatedthat in the 1950s, the colonial government was only able to acquire about one- fifth or one-fourthof totalproduction. 23 Forrest(op.cit.:222-3). - 1 5 - State attempted to occupy a more central role in the rural areas. Traditional political structures seen as strategic to colonial domination were sidelined. At the community level, elected local councils - village (tabanca) or neighborhood committees, inrural and urban areas, respectively - were put in its place. As a result, some o f the powers o f the traditional structures were, at least at a juridical level, withdrawn and transferred to the local structures o f the modern State.24Despite these attempts to undermine the existing local authorities, the traditional structures inmost cases continued to function, creating in effect a parallel system o f competing instances o f governance at the local level. The new structures imposed by the modern State, however, often did not end up serving their intended purpose o f bridging the gap between society and the State.25 Downward accountability, from the State to the village-level, was often lacking, and few mechanisms were put in place to transmit the views and opinions o f village committees up to the central level. Moreover, the village committees did not enjoy the same legitimacy as existing structures o f power, and so were often undermined. Undeniably, traditional authorities, particularly in rural areas, continued to wield power in the' communities, either by ending up dominating the State-sanctioned village committees or by sidelining them.26Inthe end, the village committee system gradually became defunct, leaving the State with little presence at the village level. Therefore, in rural Guinea- Bissau, much like during the colonial era, the regulation and distribution o f land and other key resources, the administration o fjustice, and the main provider o f security at the local level, often remains in the hands o f traditional authorities, with the State having little or no influence. This has also clearly undermined the State's ability to collect taxes on a regular basis, further underminingthe fiscal situation o f the State and its ability and' capacity to provide services at the community and village levels. Conversely, without receiving any services from the State, the obligation on the part o f the citizens to pay taxes to the State was also undermined [it i s crucial that attempts are made to bring greater clarity and predictability to the different roles and responsibilities o f the competing sources o f authority, particularly at the local level]. The law on local autarchy provides some legal foundations for formalizing this relationship, but inthe absence o f a thorough effort to develop a framework for implementation that aims to integrate customary law and authority alongside the frameworks o f the modem State, little can be- expected from such initiatives. As will be explored in greater detail inBox 2.1 o f section Dbelow, recently there have been some promising and innovative attempts, particularly as regards the regulation o f land, that aim to clarify, harmonize and formalize the relationships between modern and customary forms o f land ownership, use and distribution. In so doing, however, it i s crucial that attention is also paid to questions o f access and distribution to ensure that potential sources o f inequity at the communal levels are not thereby institutionalized. 2.25 The post-independence State largely inherited the weak institutional legacy of the colonial era. Although the successive post-colonial governments attempted to extend the grasp o f the State to the local levels, overall, the situation at present has not changed dramatically compared to the one during the colonial rule. InGuinea-Bissau, the 24 LourenFo-Lindell(2002: 61). 25 Forrest (2003: 209). 26Forrest(2003: 207-9); Rudebeck (1998; 1990; 1997). -16- State continues to be largely absent outside o f the capital Bissau (as evidenced by a weak Government Effectiveness Index in 2002, see Figure 2.1 below). At best, there is an administrative presence o f the State at regional and sector levels, leaving community and village-levels institutions unattended. In recent years, some progress has been made in social service delivery, notably in the education and health sectors thanks to the support o f the Bank and other development partners o f Guinea-Bissau (bilateral and multilateral donors, NGOs, and CSOs/CBOs). D. SECURITYSECTOR, LAND REGULATION AND CONFLICT 2.26 The military has been at the forefront of all major conflicts and instability in recent years. The role o f the military in triggering and sustaining instability reflects a vacuum left by Government fragility. In the absence o f resilient democratic institutions, the military represents a viable tool for access to power and resources, and is easily manipulated for political gains. This pattern is illustrated in almost all the major destabilizing events that the country experienced since independence. In 1998, the military turned out in support o f their Commander-in-chief who was seen as unjustly treated by an alleged corrupt government. In 2003, governance failures prompted the military to oust the president and turnpower over to civilians, while continuing to play a critical political role in the back scene. In 2004, the military played a key role in the mutiny that resulted in the killingo f the Army Chief o f Staff, but many believe civilian opposition politicians were pullingthe strings. Moreover, the military suffers from ethnic imbalance, and poor living conditions inthe barracks. While it is rarely a major source o f conflict in itself, the military remains highly subject to political and ethnic manipulation untilthese problems are addressed. 2.27 Widespread poverty and ethnic problems within the army are major risks of military-related conflict. Soldiers allegedly lack adequate food supply and dwelling conditions. In order to prevent military-related conflicts, the authorities will need to improve living conditions in military barracks, reduce the size, reform the pension system, and balance the ethnic composition o f the armed forces through a comprehensive SSR program. This issue will be further addressed in the discussion on short and- medium-term policies inthe fourth chapter. 2.28 Control over and access to land is a major source of vulnerability and conflict in urban as well as rural areas. Although Guinea-Bissau's new Land Law27 was enacted in 1998, the law has not been officially approved yet (see Box 2.1 at the end o f this section).28 Without a proper regulatory framework, access to land for dwelling, water, and transhumance represents a major source o f conflict. Land remains a basic source o f livelihood for the majority o f the population. Women, youth, and migrant- groups are potentially vulnerable in access to and control over land. Rural land i s managed by traditional authorities, the group historically controlling the land (donas de terra). Consequently, groups that are not indigenous to the area and more recent migrants do not have access to the same assets, land in particular, in which they can make long- 27 ~ a n~5198 w 28 Pursuantto Section 1of Article 52 of the new Land Law. - 1 7 - term investments. Specific ethnic groups such as the Balante in the south and refugees- from Casamance in the north29are the most vulnerable social groups as far as access to landis concerned. 2.29 In many cases issues relatedto access to land and other productiveresources involve a family component due to differences in access between genders. Specifically, access to land and labor in Guinea-Bissau, like in most other African countries, requires membership and belonging to social institutions, in particular membership in autochthonous kinship and domestic groups.3o Critical productive resources are vested within these groups, and, in most cases, these resources are principally controlled by more senior men. Marriage is the foundation o f these groups, and i s the institution through which men are allocated land. Women gain use rights over landthrough the land allocated to their husband^.^' They are also primarily able to call upon and mobilize labor, through the institution of marriage. Unmarried women or women in female-headed households, (unmarried) youth, and `outsiders', i.e. those that have not descended from the community founders, are therefore also restricted in their access to productive resources. The access to productive resources and participation in- social life by non-autochthones depends on the acceptance and goodwill o f senior, male `patron' autochthones - frequently the Chefe de Tabanca- and normally can only occur by marrying into a local, autochthonous family. The `client' outsider would be expected to return the favor. in a number o f ways, although these relationships are never equal and work infavor o f the more powerful patron who has greater bargaining power. Fieldwork carried for this study picked up on the problem o f access to land by non-natives (non- autochthonous) - including immigrants from the Casamance region o f Senegal to the north o f the country but also migrants internal to Guinea-Bissau - who as a result were. either left without the ability to farm (in some cases), or gained limited and conditional access to land. 2.30 Those that gained access to land often had to abide by a range o f conditionalities, such as being limitedto cultivating rice, corn or cassava, and not being allowed to use the land for hticulture and cashew plantations. Access rights were also only temporary, meaning that non-native households had to re-negotiate the access to and use o f land on an annual basis. Landreceived was also often o f lesser quality, which in some parts o f the. country (e.g. the less fertile East) could mean chronic food shortages. Women's access to land and other productive resources was also seen to be affected by this. As women only gain access to landthrough their husbands, which creates a certain level o f dependency o f women on men, women that had been abandoned, divorced or widowed would in some cases sometimes find themselves without access to land. While women were in most cases still provided with land, though mainly on a temporary basis, the more serious problem inthese cases was their access to and ability to mobilize labor to help work and 29 The UNHCR estimates a total refugee population in Guinea Bissau around 7,600 in 2003, including all nationalities.2003 Global Refugee Trends, UNHCR, June 15 2004 30Autochthonous groupsrefer to those descendedfrom the original founders of the community. For information on the larger African context, see Berry, 1993. "Inrarecases,womencanalsoownlandintheirownright.Widowedwomenmightinheritlandintrustfortheirsonswhichisthen allocated to the sons upon marriage. Women that are single or divorced, and widows who have lost all their sons, may be forced to retum to their familiesandmightbegiven a small area to farm. Some widowed or otherwisesingle women have to negotiate access to landevery season. - 18- cultivate the land. The extent o f this problem seemed to vary according to ethnicity and religion, with women inthe East seeming to be left more vulnerable ifsingle, widowed or abandoned, than inother areas. 2.31 The issue o f access to landis o f immediate importance given the current national and legislative debate on reforming the access regime to land. While the new law makes a grand leap forward in recognizing traditional authorities' role in managing and distributing communal land, the discussion here highlights the importance o f also addressing the specific needs o fwomen, youth and migrants inaccessing land. Moreover, the regulations also need to take seriously the many latent yet intensifying conflicts over access to land, particularly those between livestock breeders and agriculturalists, as well as between traditional communities and private investors (includingponteiros). Conflicts over land in urban areas are also becoming more serious, most o f which have been between urban settlers and the Municipal Council o f Bissau (CMB). The C M B has taken on the responsibility o f managing land in Bissau, and claims ownership o f much land currently being inhabited by poor dwellers, particularly in the outskirts o f the city o f Bissau. The local government has encroached extensively also on customary land in Bissau and nearby Biombo, literally expropriating the Pepel (native owners o f these lands) o f large shares o f their land. An area in Alto Bandim, for example, which was originally used by local farmers for cashew production, but which was expropriated by the municipal government without any compensation and later sold to private persons or turned into luxury residences, such as the recently built Ministers' Quarters on Alto Bandim.32 Perhaps most importantly, efforts need to be made to ensure the implementation capacity o f the new law and its regulations, without which the land law will have little impact on the ground. 2.32 The availability o f labor in rural areas seems to be decreasing. Fieldwork documented a so-called "rural exodus", primarily o f youth escaping rural areas in search o f further education and better life opportunities in urban towns and cities. Inaddition to the thousands o f uneducated youth this adds to the informal and unemployed labor market in Bissau, this exodus is also leaving rural areas without the required productive capacity to farm the lands and ensure sustainable rural livelihoods. Again, however, the households with large proportions o f elderly and female members are as a result at a particular disadvantage. Economic development within a context o f agrarian transformation and industrialization represents risks o f vulnerability and exclusion in- access to land. Moreover, climatic trends may escalate land vulnerabilities and conflicts inthe near future. Although rurallandinGuineaBissauis still abundant, saltiness ofland andreducedrainfall, along with fast growing cashew farming, may create further tensions unless land rules are clearly regulated and disseminated. Land related tensions are therefore likely to persist in the future if adequate legal and regulatory mechanisms are not put inplace. 2.33 Conflicts over land continue to disrupt agricultural and other production- activities, and underminelivelihoodsfor the poor.Access to water and transhumance areas are major sources o f violence and disruptions inagricultural production. Four types 32 Lourenpo-Lindell, 2002 - 19- o f latent conflicts have been observed in rural areas. First, access to water is reported as one o f the principal source of conflict. Second, pastoralist stockbreeders migrate to more fertile agricultural land where their livestock may cause destruction in planted fields. Since land distribution is generally managed by traditional authorities, such inter- community conflicts between sedentary farmers and migrating stockbreeders may be more difficult to resolve. New regulations include requirements that private landowners as well as local Management Committees designate corridors o f passage o f livestock. Experience from other countries particularly points to the importance o f access to water within these corridors. Third, conflicts have already been observed between traditional land management and use, and external investors for commercialization o f agricultural product, particularly cashew. In these cases, ceding land by government authorities toward private use clashes with customary land management incommunities. These types" o f conflicts may increase in potential as commercialization o f cashew plantations expands. Finally, land for urban settlement i s another major source o f conflict which will need thorough attention inthe context o fthe landregulation system. 2.34 Guinea-Bissau needs adequate legislation for aligning the roles of traditional authorities and the State in management of land. A regulation to the 1998 Land Law i s currently under elaboration (see Box 2.1). The legislation seeks to align the responsibilities o f the authorities and the State in management o f land by giving legal- authority to traditional leaders, and involving them inthe local commissions to be set up to govern land distribution and taxing. The division o f responsibilities and capacities between the four levels (national, regional, sector, and section) o f the commissions to be established will be important to avoid duplication and conflicts, particularly between commercial use and local traditional use. Information and dissemination o f the new regulation will be critical to its impact and effective enforcement. The regulation includes provisions for taxing o f land, and the local commissions with traditional leaders being- responsible for tax collection. Finalizing this legislation will be critical for land management and conflict prevention inGuinea-Bissau - 20 - Box2.1: LandRegulationinGuinea-Bissau Under the colonial administration, two types of property rights had been conceptualized under Decree 43893 o f ,1961: the land right o f the State and that o f the Copmunities called reserved areas. The reserved areas had covered the areas actually under cultivation and residential areas, yet excluded the areas under fallow and extraction activities (fishing and forestry). The Land Law 4/75 adopted after the independence in 1975 had transferred landproperty to the State. The new Land Law (Law nQ5/98) adopted in 1998 has articulated three principal objectives: (i) guarantee land rights to local communities for economic use; (ii) acknowledge customary land regime by representative institutions; and (iii) Stimulate land investment by creating market value. Contrary to the previous legislation, the new law has authorized and introduced permanent or temporary land concessions both inurban and rural areas. Inaddition, the law has created a tax mechanism to increase the land use efficiency aimed at dismantling large-scale farms (Zutifundios) unable to demonstrate income generating capacities. Furthermore, it has permitted the formation o f an administrative commission o f land whose objective is to safeguard the law enforcement and consorted interventions in the land use. The land in Guinea-Bissau has been declared a property o f the State constituting a common property o f all the people (Article 2Q,Section 1). Yet, all citizens have a right to private use o f land, and the State can grant the right o f private use to individuals and collective units, national and foreign entity for economic and social development objectives (Article 4Q, Section 1). Such land rights for private use are recognized either by: a) customary use (us0 consuetudincirio), as is envisaged land use by traditional local communities, and b) concession (Article 4O, Section 3). The present law therefore recognizes land use rightsbased on customary use practiced by traditional local communities. This is an important instrument to recognize and guarantee traditional rights in a modern legislation context. The private land use right under customary use is a permanent title and can be exercised in rural and urban land including reserved areas for local communities (Article 16). The land under the customary use covers cultivated and inhabited zones as well as unexplored zones and resources attributed to the local community residents through their representatives. The administration and distribution o f the land under customary use by the local community residents is to be exercised according to the custom and practices o f each community, and any omitted part shall be governed by this law (Article 17, Section 1, 2). The law clearly stipulates in Article 17, Section 3 that the State recognizes the residents' right for community administration and exploration o f the land, forest and other natural resources according to the local custom and practices. The private land use right under customary use is guaranteed by the State independent o f written contract or register, obliging the Land Commission to promote and constantly update the registration services (Article 17, Section 4). This right shall be transferred by successive inheritance and is transferable to other resident(s) within the local community free o f charge, according to the local practices independent o f endorsement by contract and register (Article 18). The transfer of the private land use right under customary use to a third party other than those referred to in the Article 18 shall be made in agreement with the State and the local communities and follow the process to be applied in the concession. In such cases the population o f the local communities retains the right to freely and directly negotiate the terms o f transfer in accordance with the conditions specified in the Article 23 (Article 19). The private land use right under customary use can be converted into the private land use right under concession (Article 21). The private landuse right under concession is granted by administrative contract and has a duration o f 90 years to be automatically renewed if not revoked (Article 22). This right is transferable by contract or inheritance upon request for official authorization. The process o f grant, transfer o f and conversion into the private land use right under concession involves tax obligations, and the right i s subject to annual land tax payment (Article 38). The land tax revenues shall be distributed in the following manner; a) 60 % to the public treasury, b) 20 % to localcommunities, c) 10 % to regional and sectoral administrative authorities, and c) 10 % to the Land Commissions. - 21 - 2.35 Finally, there is a critical need to resume work on the development of the cadastre. As indicated in Box 2.2 below, prior to the conflict the authorities initiated work on an integrated cadastre system. The task was financed by the EU under the VI1 FED program, and plannedfor execution duringthe period of April 1996 March 1999. - The objective o f the project was to develop a land tenure system for regulating land management in rural areas. The initiative was stopped in June 1998 when the conflict broke out. It is therefore critical to update the topographical map to a digital topological structured map database. The new database was created from existing 1:50,000 paper maps usingthe satellite imagery for update. Box 2.2: Status of the Cadastre Prior to the conflict, the Ministry o f Plan and Cooperation was working with a private Danish firm, `Consultant Within' (COWI), to design an integrated cadastre and land management system. The goal was to develop a land tenure structure and to improve land tenure security and legitimacy for the rural population. The project included four main activities: (i) rehabilitation o f the geodetic network (review o f the present network, planning, construction o f beacons, surveying, and evaluation); (ii) organization o f the cadastre (institutional development and regional organization, improvement o f the physical infrastructure and training); (iii)improvement o f village delineation (development o f a new system for village delineation and methodology for improved land tenure security for small-scale farmers and subsequent implementation in different areas); and (iv) improvement o f land inspectiodtaxation base (review and updating o f land concessionprocesses, including transfer to database, field inspections, and implementation o fthe new land law and landtaxation system). During the project, it became clear that a new cartographic basis was needed. Earth Observation Satellite (SPOT) images were used as a new comprehensive basis with a digital output and printouts at scale 1:50,000 to fit into the existing topographic map series used as cadastral maps. The project also contributed to the analysis and design o f the new Land Law approvedby Parliament inMarch 1998. A community participatory approach was introduced as a way to improve the understanding o f the customary and local land tenure structures and to integrate the rural population in the land titling activity. Costhenefit aspects were focused on the land titling activities, with a view to sustainability. Privatization o f the surveying fieldwork as well as the institutional framework o f the Directorate was analyzed. The staff at the Directorate o f the National Services for Cadastre and Cartography was trained inrapid and participatory rural appraisal, low-accuracy Global Positioning System (GPS), static GPS, traditional surveying methods, software for surveying, database, mapping, accounting, reporting, and English. m:COWVKAMPSAX h~://www.kampsax.co~projects/div04proj/Countes/divO4~GUMEABISSAU.asp - 22 - E. CONCLUSION AND POLICY CONSIDERATIONS 2.36 At this juncture o f Guinea-Bissau transition from post-conflict to long-term development, it is o f outmost importance to enhance political stability inorder to mitigate risks o f conflict as experienced inthe past. Inthis context it is critical to address security and landissues, the two main factors of conflict inthe country. 2.37 Inthe short-term, improving living conditions inmilitarybarracks will be critical for preserving political stability. Inthat vein, key immediate actions under the SSR would include the rehabilitation o f military dormitories, and sanitation and food services in military caserns. 2.38 Inthe medium-term,the SSR would need to address issues relatedto downsizing the armed forces, reforming the pension system, and balancing the ethnic composition of the security sector. With regard to land reform, the Government would need to officially adopt and implement the new Land Law in order to provide a legal and regulatory framework for the resolution o f conflict stemming from land use. Finally, updating the cadastre will be critical for the implementation o fthe landreform. - 23 - 3. POVERTYANALYSIS Over the last two decades, the incidence of poverty has remained relatively high in Guinea-Bissau, and adversely afected economic performance, governance and the development of institutions. About two-thirds of the population lived in poverty in 2002. Poverty is characterized by limited access to education, health, water and energy services. People living in rural areas and practicing agriculture bear the highest poverty incidence (63 percent), compared to those living in urban areas and earning salary incomes (50 percent). Moreover, the poverty incidence is higher for men compared to women. The analysis also provides evidence that agriculture represents the main livelihood strategyfor thepoor. Finally, estimations based on empirical evidence suggest that the efect of the conflict has signijicantly undermined prospects of achieving the MDG objective of halving the poverty rate by 2015. 3.1 .The 1994 poverty assessment based on the 1991 ICOF data estimated that nearly four-fifths o f the population was living in poverty in the early 1990s. Duringthe 199Os, the Government implemented a package o f reforms, which contributed to improved economic performance. The latter may explain the slight decrease in the poverty incidence between 1991 and 2002 as shown in Section A below. If the expansionary trend was not disrupted by the conflict it is believed that poverty would have decreased at a higher rate, hence increasing chances for achieving the MDG target for poverty. The main objective o f this chapter i s to analyze socioeconomic characteristics and determinants o fpoverty inGuinea-Bissau. The chapter is structured inthe five sections as follows: (i) poverty profile; (ii) determinants o f poverty; (iii) livelihoods o f the poor; (iv) conflict and poverty; and (iv) conclusion and recommendations. A. POVERTYPROFILE33 1. Monetary Povertyin 2002 3.2 The methodologyused in the report is consistent with the authorities' PRSP. The quantitative analysis i s based on the 2002 ILAP survey conducted by the National Statistical Institute (INEC).34The survey's sample size i s 3216 households, o f whom 672 live in Bissau, and 2544 in the rest o f the country. The methodology for estimating poverty is non-standard, due to weaknesses in the data (limited questionnaire on food consumption, among others). Instead o f computing a poverty line based on the cost o f basic needs method, we follow the PRSP as well as previous work35 in assessing the value o f the international US$1 and US$2 poverty line in local currency units. It turns out that the extreme poverty line corresponding to the US$1 threshold is CFAF 108,000 33 All mentionsto povertyandpovertyincidence, in this section, refer to the povertyheadcountindex. 34 The surveywas actuallyimplementedbetweenMarch2001 andApril 2002. 35 Syllah(2004) - 24 - per person per year. The poverty line corresponding to the US$2 threshold i s therefore CFAF 216,000 (see Box 3.1). Again following the method used for the preparationo f the PRSP, the indicator o f well being on which the poverty measures are based is the consumption level per equivalent adult. Household members above 15 years o f age are considered as adults, while younger members count for one halfo f an adult. 3.3 Nearly two-thirds of the population was living in poverty in 2002. The annual consumption per capita recordedinthe survey is CFAF 164,061 and the consumption per equivalent adult is CFAF 211,927. As shown in Table 3.1, the individual level poverty measures suggest a headcount o f poverty o f 65.7 percent and a headcount of extreme poverty o f 21.6 percent. When population weights are taken into account (i.e., when the poverty rate i s computed at the household level), the incidence o f poverty is estimated at 58.9 percent, while that o f extreme poverty i s 16.8 percent.36 3.4 Poverty decomposition by region reveals that coastal regions have lower poverty levels compared to landlocked areas. There are noticeable differences in the poverty measures by region. As shown in Table 3.1, the coastal towns o f Bissau and to a lower extent Biombo/Bolama and Cacheu have the lowest levels o f poverty, whereas the interior areas o f Bafata and especially Oio have much higher levels o f poverty. While this finding seems to contradict conventional wisdom, it is likely to be an indication o f the pervasive effect o f the region's heavy reliance on the production o f raw cashew which i s a low value-added activity. As discussed latter in chapter five, cashew kernel processing could represent a good alternative for creating more jobs and reducing the incidence o f poverty. Yet in comparison to some other sub-Saharan Afr-ican countries, the differences in poverty between regions are in fact somewhat limited. That is, poverty seems to be widespread everywhere in the country and it also affects many different segments o f the population (see the fourth chapter o f Volume 2 for further discussion). Table 3.1: Poverty Decompositionby Region in 2002 (in percentage) '' GIN1 Poverty ExtremePoverty Region index Po P1 p2 Po p1 p2 National 36 " 65.7 25.7 12.9 21.6 5.5 2.2 Bissau 37 52.6 17.5 7.6 9.8 2.0 0.6 Bafata 73.2 30.5 16.0 27.2 7.5 3.1 Gabu 67.0 25.7 12.8 20.4 5.6 2.5 Cacheu 64.7 27.9 115.2 28.4 7.8 3.1 Oio 80.4 34.8 118.6 35.3 9.0 3.6 BiomboBolama 63.9 22.4 10.0 14.5 2.8 0.8 QuinaraITombali 70.3 27.4 13.9 23.1 6.5 2.5 Source:StaffEstimatesbasedon the Guinea-BissauLightHouseholdSurvey(ILAP) Data, 2002. "PO,PiandP2aretheusualpovertyheadcount,povertygapandpovertysquaremeasures. 12The GMI indexwas estimatedat 40.3 percentin 1994. 36 The relativeimportanceof the individual-levelpovertycomparedto the household-levelcanbe explainedby the fact the household headis morelikely to eam an incomeas opposedto eachindividual memberof the household. - 25 - Box3.1: 2002 ILAP Survey Design,DataCoverageandConstructionof Poverty - Line Design. The ILAP data collection was carried out from March to May 2002. The survey was based on the Questionnaire on Basic Welfare Indicators (QUIBB), designed by the Bank in collaboration with the United Nations agencies specialized in development. The 2002 QUIBB was a light survey as opposed to 1991 full fledged household income/consumption survey (ICOF). I t was carried out in a relatively short timeframe during which data processing and consistency check is performed in a coherent manner. QUIBB i s based on a master sample o f 3,216 households shared between the autonomous sector o f Bissau (672 households) and the other areas o f the country (2,544 households). The sample selection relied on `Census Districts' (Districts de Recensements, DRs)as established inthe General Census o f Population o f 1991. The work o f update o f the DRs located in Bissau was made in December 2001 within the framework o f the WAEMU's Harmonized Consumer Price Index project. The DRs for the other regions were updated based on information gathered during the survey. The full sample is then divided into seven (7) strata: Bafata, Gabu, Cacheu, Oio Biomba/Bulama, QuinardTombali and the autonomous sector o f Bissau. The sample selection was thus a two-stage selectionprocess. The fxst stage o f selection was the master sample. The second stage o f selection was a sub-sample o f 12 households for each stratum. They were selected systematically with equal probability and, moreover, equally allocated among the 7 regions o f the country. Data Coverage. QUIBB was designed to obtain the relevant indicators necessary to profile the well- being o f persons and households inGuinea-Bissau, and to provide reliable estimates o f these indicators at the national level, for Bissau and the other regions in the country. QUIBB data used various expenditure characteristics o f households (housing, property, equipment, agricultural land, livestock, cattle, etc.) to measure the standard o f living o f the populations, and analyze the degree o f satisfaction o f the populations with regard to the delivery o f basic social services in the areas o f infrastructure, education and health. However it didnot include disaggregated informationon production, expenditure andprice data for key agricultural commodities (cashew nuts, fishproducts, etc.). Poverty Line. The report usedthe poverty line constructed by INEC for the purpose o f the authorities' PRSP work. The construction o f this line required the definition o f a welfare indicator using adult equivalent expenditures. The latter included the following expenditure items: food and non-food consumption, imputedrent and transfers. These expenditures were then converted into adult equivalent values based on the so-called Oxford Equivalence Scale, which assigns a value o f 1to people aged 15 years old or more (adults), and a value o f 0.5 to children (less than 15). The poverty line was constructed as follows: First, the adult equivalent expenditures were adjusted for purchasing power parity (PPP) factors based on the US inflation rate. Second, the international poverty line o f $1 and $2 PPP(l985) were used to determine the $1 and $2 PPP(1999) using the Guinea-Bissau PPP conversion rate for 1999 available in the World Development Indicators (WDI) 2001. Finally, the $1 and $2 PPP(2002) poverty lines were constructed by updating the 1999 poverty lines using the Harmonized Consumer Price Index o f the WAEMU. 2. SubjectivePerceptionsof Well-Being andSafetyNetsin 2005 3.5 This section analyses people's subjective perceptions o f poverty, and the role o f social networks in Guinea-Bissau. It uses the 2005 QS data to construct an asset index, which is usedto classify the households according to their level o f wealth (see Box 3.2; a detailed account o f the methodology used is presented in the third and fifth chapters of Volume 2). On the basis o f this wealth index, households were ranked in three terciles: The poorest households are inthe first tercile, and the richest are inthe third, with each o f the three terciles accounting for one third o f the households. Roughly speaking, the first - 26 - tercile can be seen as representing the very poor, while the bottom two terciles account for the poor. Box 3.2: 2005 QS MethodologyandDataCoverageandAnalysis - Methodology. For the purpose o f the QS, the country was sampled in 5 regional zones, Bissau and Byombo being one zone, along with the East, Islands, North, and South. Community-level fieldworks targeted at least 16 research sites (villages/neighborhoods). In each regional zone, t h e e communities were selected except inBissau and Byombo where four communities were retained. The research sites were selected based on a purposive cluster sampling drawing on a mix o f pre-identified criteria, including: Rural/urban characteristics Social diversitylethnic group Predominant livelihoods/agro-ecological zones Levels o f access to infrastructure and services x The survey was conducted by two international consultants and four local consultants organized intwo teams. Eachteam covered 2 regional zones: one team for the Northand the East; and the other team for the South and the Islands. The research sites in Bissau and Byombo were shared between the two teams. Interview guides and questionnaires were developed for the rapid survey, and the semi- structured interviews camed out inthe context o f focus group discussions. Data Coverage and Analysis. The QS covered a total o f 446 households and collected qualitative data on perceptions o f livelihood means, institutions, conflict and social service delivery. The information collected was primarily used to estimate descriptive poverty statistics for the aforementioned areas. 3.6 The majority of people believe that their poverty situation has worsened following the war. Clearly, an overwhelming majority o f households declare that they are worst off today as compared to before the war, with few variations between terciles (see Table 3.2). In addition, a majority also believes that they are worse o f f today than one year ago, but here the proportion is especially high among the poor or extreme poor. This suggest that the continuous state o f instability may be more detrimental for poorer than wealthier households. The last four items inTable 3.2 are measures of subjective poverty and information on the number o f meals per day, whether households feel that they are lacking food, and if they do, when this occurs. These data suggest that households that have been classified in the bottom terciles do indeed see themselves as comparatively poorer that those in the top tercile, they have fewer meals per day on average, and they are also more likely to lack food (this affects a very large share of the poor), especially duringthe rainy season. 3.7 Social networks often seem to provide crucial sources of support for poor' households, particularly during times of stress and coping. A minimal social protection is offered to many households by `safety nets' that poor households build among them~elves.~~There exist a range o f social networks, the most common o f which are those based on kinship and family, village-membership, religion, and neighborhood ties. Kinship ties are often important sources o f food and money, both for consumption purposes, as well as for market activities. Neighbors inurbanareas living within the same house or compound, provide a similar role. Also in urban areas, relations o f assistance 37Lourenpo-Lindell,2002. - 27 - develop at the market place in a variety o f ways between sellers in the same trade who assisted each other, sometimes pooling resources and contacts. Some traders count on credit from suppliers. Abotas, the rotating savings groups referred to earlier i s another key resource. Another kind of cooperation consisted o f organized groups among day workers (surni), where men share job opportunities and redistribute incomes. At the village-level, during the last two decades there have been revivals o f traditional social clubs, mandjuandades, which provides recreational and some level of economic assistance to its members.38 Finally, some households participate in local religious groupings, Catholic, Evangelical and Islamic congregations. Some of these, however, may be more important in terms of providing personal acquaintances and contacts for cooperation in other social settings, such as the market, than in terms o f the volume o f material assistance they provide to needy members. Table3.2: Subjective Perceptionsof Well-Beingin2005 Tercile Area 1 2 3 Urban Rural Total Changeinwell-beingversus beforethe war Got better 14.18 12.06 15.79 12.18 15.06 13.98 Same 9.22 9.93 7.52 7.05 10.04 8.92 Got worst 75.89 77.30 76.69 80.77 74.13 76.63 Not applicable 0.71 0.71 0 0 0.77 0.48 Total 100 100 100 100 100 100 Change inwell-beingversus lastyear Got better 28.47 27.66 40.14 33.73 31.03 32.08 Same 18.06 15.60 9.86 10.84 16.86 14.52 Got worst 53.47 56.74 50.00 55.42 52.11 53.40 . Total 100 100 100 100 100 100 Householdsituation versus its community Very poor 33.83 29.69 16.92 23.33 29.05 26.85 Poor 4.51 3.13 4.62 4.00 4.15 4.09 Medium 45.11 57.03 50.77 50.67 51.04 50.9 Rich 15.79 9.38 26.92 21.33 14.94 17.39 the most rich 0.75 0.78 0.77 0.67 0.83 0.77 Total 100 100 100 100 100 100 Howmanymeals do you take ina day? One 43.97 29.41 26.09 25.31 38.34 33.25 Two 37.59 43.38 44.20 46.30 38.74 41.69 Three or more 18.44 27.21 29.71 28.40 22.92 25.06 Total 100 100 100 100 100 100 Lack offood Yes 93.71 95.74 73.24 79.52 92.69 87.56 No 6.29 4.26 26.76 20.48 7.3 1 12.44 Total 100 100 100 100 100 100 Ifyeswhen? Endof dry season 0 4.51 2 1.57 2.52 2.19 Rainy season 60.61 55.64 45 42.52 60.92 54.52 Beginningof rainy season 7.58 6.77 5 2.36 8.82 6.58 Beginningandend of rainy season 3.03 0.75 11 8.66 2.10 4.38 Dryseason 7.58 8.27 8 8.66 7.56 7.95 . Rainy season anddry season 3.79 0.75 1 1.57 2.10 1.92 Othershowresponse 1.52 0 1 0.79 0.84 0.82 All the time 15.91 23.31 27 33.86 15.13 21.64 Total 100 100 100 100 100 100 Source: Staffestimation from2005 QS. 38 These informal, communal groups, which may include bothwomen and men, are structuredaccording to age. Within a tabanca a new group is establishedabout every three years, and is oftennamed after the major event occuningin the tabanca that year. In Cai6, the groups go under the name wan; the latest group was establishedthere in 2004 and is called uran telemobel named so as this was the year cell-phonesbecamepopularinGuinea-Bissau. - 28 - 3.8 Nevertheless,these safety nets are limited and often exclude the poorest of the most vulnerable households. Households and individuals vary in their access to social networks and are therefore not equally protected against shocks and unexpected events. The more vulnerable o f individuals and groups are those that are more isolated, with a very small number o f sources which they can rely on for assistance. Also, many households or individuals do not seem to be in a position to combine different sorts of these `safety nets'. Some remain very reliant on one type o f network, seemingly unable to select those networks they prefer and to break free from those they deem oppressive and disadvantageous. Other networks are based on hierarchical and inegalitarianpatron-client relations that while providing some source o f security to the poorer client, the relationship may still be abusive. Hence, the existing social networks are not necessarily a panacea to solve the welfare problems o f the poor. 3.9 downturn - the time when social assistance is often needed the most. Economic Vulnerability may also be exacerbated during periods of general economic hardship seems to erode the collaborative efforts among the poor, as well as the material basis o f their support networks. As a result, many are forced to rely on their own resources, as they perceive other members o f their networks as being as badly o f f as they are. The redistribution groups among casual workers, for example, have over the last couple o f years become less and less reliable, due to a continued influx o f unemployed youth into the labor market, a reduction in employment opportunities, and declining incomes. In a situation o f increasing impoverishment, the assistance provided by religious groups i s also put under pressure. And, as noted earlier, participation in the abotas also becomes difficult for those unable to comply with regular contributions in times o f uncertain and irregular incomes. As such, it may seem that those that rely exclusively on market-based networks - while having more flexibility and choice - may end up being more vulnerable than those that also, or even only, have access to kinship- based sources of support, which may be more tolerant o f the inability to reciprocate duringlongperiods o ftime. Given this, it would beworth asking the question o fwhether it may be likely, that those who due to their social status had limitedaccess to productive resources - single, widowed or abandoned women, (unmarried youth) and non-native migrants-may also have lesser accessto kinshipbasednetworks. 3.10 High inequality and social diversity are potentialthreats to the formation or maintenance of social capital. The country comprises some 20 different ethnic groups, underscoring the fact that social capital formation may not always be durable and sustainable, particularly in urban settings where inequality and diversity i s at greater display. When asked about potential sources o f inequality in the country, households mentioned that religion, age and gender were more important factors at the source of existing inequalities than ethnicity (see Table 3.3). Geographic location played a less important role inthe mindset o f the population, even though it can be demonstrated that it actually plays an important role in explaining differences in well-being between households (see Chapters 3 and 4 o fthe for further discussion). - 29 - Table 3.3: Main Source of Inequality in 2005 Tercile Area 1 2 3 Urban Rural Total Ethnicity A lot 4.65 7.41 14.39 14.10 5.42 8.84 A little 25.58 31.11 34.85 35.90 27.08 30.56 No 69.77 61.48 50.76 50 67.50 60.61 Total 100 100 100 100 100 100 Religion A lot 13.99 12.86 34.3 1 31.87 13.08 20.24 A little 25.17 28.57 22.63 21.88 27.69 25.48 No 60.84 58.57 43.07 46.25 59.23 54.29 Total 100 100 100 100 100 100 Age A lot 35.11 19.26 26.52 21.15 30.58 26.88 A little 14.50 22.22 30.30 30.77 16.94 22.36 No 50.38 58.52 43.18 48.08 52.48 50.75 Total 100 100 100 100 100 100 Gender A lot 10.85 14.81 20.74 20.63 12.13 15.54 A little 34.11 25.93 36.30 32.50 31.80 32.08 No 55.04 59.26 42.96 46.88 56.07 52.38 . Total 100 100 100 100 100 100 Geographic Location A lot 3.88 10.53 16.79 18.83 5.02 10.43 A little 34.11 27.07 32.82 31.82 30.96 31.30 No 62.02 62.41 50.38 49.35 64.02 58.27 Total 100 100 100 100 100 100 Source:Authors' estimation from 2005 QS. 3.11 The fragility o f the community-based safety net system; as noted above, underscores the need for the authorities to seriously address the issue o f social protection o f the most vulnerable. The inclusion o f these issues under the third pillar of the authorities' draft PRSP represents a positive move, and would need to be articulated and sustained over the medium-term and inthe next generations of PRSP to follow. B. DETERMINANTSPOVERTY OF 1. Socioeconomic Determinants of Poverty in 2002 3.12 The poverty incidence is lower among people within the age group 31-45` relative to the others. The poverty rate among people within the age cohort of 31-45 years is lower (62.8 percent) than the rate among people who are more or less than 45 years old (more 65 percent in average) (see Table 3.4). As expected, the highest incidence o fpoverty occurs among people aged 66 or more (75.6 percent), who are likely to have a higher level o f family responsibilities due to the relatively large household size and high dependency ratios (as evidenced by a relatively highpoverty incidence among people aged 31 or less). Senior people are expected to have accumulated wealth from years o f employment andnormally would be financially better o f f than relatively younger persons. However, inGuinea-Bissau as inother parts o f Africa, social security is not well developed and workers are unable to save because of a lifetime o f poor employment conditions. With these factors combined with relatively high dependency ratios, it i s not surprisingthat the incidence ofpoverty is liigher amongpeople inthe 66 plus age group. - 30 - Table 3.4: PovertybyAge in 2002 Poverty (inpercentage) Household Size (in number of individual) Age Category PO P1 p2 4 5 65.5 25.4 12.7 9.6 16-30 65.7 25.5 12.7 9.3 3 1-45 62.8 24.3 12.1 8.7 46-65 69.3 27.9 14.4 9.0 Xi6 75.6 31.8 17.2 9.3 Source: StaffEstimatesbasedon the Guinea-BissauLightHouseholdSurvey (ILAP) Data, 2002. 3.13 While the overall povertyincidenceis even across gender, the decomposition by gender age groups yields mixedresults.The national poverty is about two-thirds for men and women alike. However, the incidence o f poverty is higher for women below 31 years and above 65 years compared to men (up to 3 percentage points o f difference inthe poverty headcount measures). By contrast, women tend to be better o f f compared to men within the age cohort 31-65 (2 to 10 percentage points o f difference in the poverty headcount measures) (see Table 3.5). A number o f reasons could explain this unusual phenomenon. Traditionally, the formal sector o f employment, particularly the public sector, has been dominated by male workers. Women, on the other hand, have typically been most active in the informal sector. The groups o f small traders, mostly women that resisted the restrictive policies o f the colonial and early post-independence State expanded greatly with the liberalization o f the economy inthe late eightiedearly nineties. Inaddition, the hardships imposedby adjustment and the contractiono fthe public sector have increasingly served as incentives for women to engage in income generating activities to supplement the income o f the household. Moreover, an increasingly larger number o fwomen are involved inthe processing o fcashew nuts, which account for more. than 90 percent o f Guinea-Bissau's export earnings, and is a major source o f income for households. According to the Ministry o f Agriculture, the planting and processing o f cashew provides employment for 82 percent o f the rural workforce, o f which women represent 49 percent. Table 3.5: Povertyby DemographicCharacteristicsin 2002 (in percentage) DemographicCharacteristics Poverty Ext. Poverty HouseholdSize Gender Male Female Male Female Male Female . Age Category 4 5 65.3 65.6 21.4 21.2 9.6 9.7 16-30 64.4 67.2 20.3 21.8 9.2 9.4 31-45 67.3 57.5 23.1 17.2 9.1 8.2 46-65 70.7 68.1 27.5 20.8 9.2 8.8 ;66 73.5 77.6 31.6 33.1 9.5 9.2 Milieu Bissau 52.6 52.6 10.5 9.0 8.3 8.3 Rest o f Country 70.5 70.1 26.0 25.4 9.7 9.7 Region Bissau 52.6 52.6 10.5 9.0 6.9 6.4 Bafata 74.2 72.1 27.1 27.2 10.8 10.5 Gabu 66.8 67.2 19.6 21.2 10.9 10.4' Cacheu 64.1 65.4 27.9 29.0 9.1 9.0 Oio 80.5 80.3 37.0 33.5 9.8 9.6 BiombolBolama 64.1 63.7 14.6 14.3 8.6 8.9 QuinardTombali 70.9 69.7 23.6 22.7 9.5 9.2 National 65.9 65.6 22.0 21.1 9.4 9.3 Source: StaffEstimates based on the Guinea-Bissau Light Household Survey (ILAF') Data, 2002. - 3 1 - 3.14 'Low education limits the income generation capacity of the poor. Empirical evidence suggests that the lower the education level, the higher the probability o f being poor. InGuinea-Bissau, the incidence o f poverty among people with tertiary education i s 32 percent, a rate which systematically increases to 71 percent among people with no. level o f education (see Table 3.6). L o w education has a pervasive effect on poverty because in addition to its impact on income, it has significant spillover effects on other socio-economic factors, such as the health status o f children, reproductive behavior, infantandchildmortality andem~loyment.~~ Table 3.6: EducationalAttainmentandPovertyin 2002 (in percentage) Poverty EducationalAttainment Quintile Distribution Headcount . Rest of Female Male Bissau Country Poorest 2"d 3rd 4th Wealthiest No Level 71.6 54.8 27.2 69.7 68.6 62.4 60.1 55.6 47.1 71.1 Primary 16.3 26.0 28.7 22.7 23.5 25.8 24.2 24.8 23.8 65.3 Secondary 10.3 15.6 34.1 7.0 6.3 10.2 13.9 16.4 22.1 49.4 Superior 1.5 2.8 7.4 0.6 1.1 0.8 1.2 2.8 5.7 32.2 Other 0.3 0.9 2.5 0.0 0.5 0.8 0.6 0.4 1.3 56.2 Source: StaffEstimatesbased on the Guinea-BissauLight HouseholdSurvey (ILAP) Data, 2002. 3.15 Poverty incidence remains very high in agriculture. Agriculture provides employment for over 55 percent o f workers at the national level. As expected, 74 percent o f the people working in the agriculture sector live outside Bissau and mostly belong to the poorest quintile. Bissau, on the other hand, provides employment for a higher percentage o f people working in administration. Not surprisingly, individuals living in households where the head works in the agriculture sector have a higher poverty incidence (56 percent) compared to individuals in households where the head works in other sectors (see Table 3.7). 3.16 Poverty incidence is lower among Government and private sector workers. The majority o f government employees are based inurban areas and there seems to be a positive relationship between the economic status o f households and employment in the government sector. The low rate o f poverty observed among private sector employees could be attributed not only to better pay inthe private sector but also the stability o f the pay or the better education endowment o fprivate sector workers. Table 3.7: Povertyand Sector of Employmentin 2002 (in percentage) Quintiles Poverty All Urban Rural Female Male Poorest 2"* 3'* 4' Wealthiest Headcount Agriculture 55.82 6.00 74.38 40.92 57.98 70.60 57.92 56.23 53.04 42.08 63.1 Industry 5.14 6.44 4.66 16.88 3.44 1.48 6.91 5.95 4.85 6.39 51.9 B.T.P. 6.65 10.8 5.10 0.18 7.59 8.32 6.1 6.5 5.80 6.59 58.6 Transport 1.37 3.37 0.62 0.50 1.50 0.97 0.39 1.81 1.47 2.16 44.6 Commerce 9.86 20.09 6.04 23.97 7.81 5.51 8.95 9.03 10.52 15.04 47.9 Other Serv. 6.58 15.99 3.07 4.29 6.91 3.21 8.19 6.27 7.44 7.65 51.9 Educ./Health 1.25 2.52 0.78 1.96 1.15 1.65 0.86 0.61 1.48 1.68 46.1- Publ.Adm. 13.33 34.8 5.33 11.3 13.63 8.27 10.69 13.6 15.41 18.40 50.4 Source: StaffEstimatesbasedon the Guinea-BissauLight HouseholdSurvey (ILAP) Data, 2002. 39 Creppy (2003) - 32 - 3.17 Difficult access to basic social services is associated with higher poverty incidence. Inthe capital Bissau, the headcount poverty among those who live less than 15 minutes from potable water, primary school and health facilities (45.3, 44.9, 42.7 percent, respectively), is lower than those who live more than 15 minutes from these services (57.1, 48.2, 47.0 percent, respectively) (see Table 3.8).40 In the rest o f the country, however, the only services with a similar pattern o f distribution are secondary- schools and health facilities. Inthese regions, especially, a higher proportion o f the poor lives closer to the source o f water andprimaryschools (see Tables 3.9). Table 3.8: Poverty by Distance from Basic Services -Bissau Region in2002 (in percentage) Poverty rate inpercentage for those who have access to: Distance Secondary (Minutes) Potable Water Food Market Primary School School Health Facility I 0-14 45.3 46.4 44.9 48.2 42.7 15-29 57.1 45.1 48.2 45.0 47.0 Total 45.8 45.8 45.8 45.8 45.8 Source: Staff Estimates basedon the Guinea-BissauLight Household Survey (ILAP) Data, 2002. Table 3.9: Poverty by Distance from Basic Services Rest of the Country in 2002 (in - percentage) Poverty rate inpercentage for those who have access to: Distance Primary Secondary , - (Minutes) Potable Water FoodMarket School School Health Facility 0-14 65.7 64.5 65.8 61.4 62.7 15-29 54.5 64.1 62.3 64.5 64.7 Total 64.2 64.2 64.2 64.2 64.2 Source:Staff Estimates basedon the Guinea-Bissau Light Household Survey (ILAP) Data, 2002. 3.18 Access of the poor to electricity supplies for cooking and lighting is limited and often unreliable. About 68 percent o f the households in Bissau do not have electricity and in the rest o f the country, the proportion o f households without electricity- i s much higher at 95 percent (see Table 3.10). It is also evident that the availability o f electricity in the home i s a function o f economic well-being as the proportion o f households with electricity increases from 5 percent inthe lowest quintile to 26 percent in the highest quintile. It i s therefore not surprising that five out o f every eight households without electricity are below the poverty line. The inadequate and irregular supply o f electricity and other forms o f modem energy have resulted in the dependence on inefficient traditional energy sources.41The household survey shows that the dominant fuel for cooking or lightinginmost households is firewood and charcoal or other biomass such as dung and crop waste, especially among the poor. For example, 65 percent o f households that use firewood for cooking are below the poverty line whereas only 12 percent o fhouseholds usingelectricity or gas for cooking are poor. 40 Access to basic services i s measuredby the averagedistance (inmiles) between households andbasic services like potable water, food markets, schools and health facilities. 41 The majority o f power plants and transmission facilities built duringthe colonial era have completely deteriorated due to little investment, poor maintenance and a civil war that left a large portion o f the generation and distribution infrastructure damaged or destroyed. - 33 - Table 3.10: Access to Energyfor CookingandLightingin2002 (in percentage) Restof Ext. the Quintiles Poverty Poverty Access to Electricity Bissau Country Poorest 2 3 4 Wealthiest Yes 31.74 4.54 4.60 6.09 8.43 10.93 26.30 33.33 6.70 No 68.26 95.46 95.40 93.91 91.57 89.07 73.70 62.40 18.20 For Cooking Firewood 8.16 93.84 88.26 77.01 69.43 67.62 50.68 65.30 21.10 Charcoal 88.30 6.02 11.38 22.37 29.40 31.91 46.75 44.50 6.80 Electricity/Gas 2.13 0.09 0 0 0.27 0.23 2.28 11.60 0 Other 1.42 0.06 0.36 0.63 0.90 0.23 0.29 77.60 18.60 ForLighting Petrol/Gasoil 12.06 69.87 73.32 58.83 54.22 49.50 38.19 66.10 22.60 Firewood 73.58 13.91 13.9 27.76 33.85 34.15 40.80 51.20 8.80 SoladGenerator 13.83 2.54 1.85 2.25 3.05 5.50 13.14 29.60 3.50 Other 0.53 13.69 10.94 11.17 8.88 10.85 7.86 60.90 18.30 Source: Staff Estimatesbasedon the Guinea-BissauLight Household Survey (ILAP)Data, 2002. 3.19 Access of the poor to modern healthcare remains very limited. The poverty. incidence i s very high(about 83 percent) among women who have had a live birth inthe last 12 months without prenatal care compared to those who had it (63 percent) (see Table 3.11). Also, the poverty rate among those who use neighborhood midwiveshurses as the main healthcare provider i s highest at 88 percent, whereas only 39 percent o f individuals who used private clinics lived below the poverty line. It i s noteworthy that among those who use these neighborhood healthcare providers 63 percent are considered as extremely poor whereas only 3 percent o f individuals who use private clinics are extremely poor (see Table 3.12). These results suggest that there i s an unmet need for affordable healthcare facilities, which is probably the reason why such a disproportionately large number o f poor people rely on neighborhood midwiveshurses as the primary source o f healthcare. Table 3.11: PovertyDecompositionby RecipientsofPrenatalCarein2002 (in percentage) Prenatalcare Po PI p2 No 82.5 35.8 19.7 Yes 62.7 24.1 12.1 Total 63.8 24.8 12.5 m:Staff Estimatesbasedon the Guinea-BissauLightHouseholdSurvey(ILAP) Data,2002. Table 3.12: Povertyby Type ofHealthcareProviderUsed(in percentage) Poverty ExtremePoverty Type of HealthcareProvider Po PI pz Po PI P2 Private hospital 59.2 22.0 10.5 16.3 4.0 1.4 Public hospital 51.2 16.2 7.7 12.6 3.6 1.4 Communityhealthcenter 58.5 21.6 10.7 16.6 4.6 1.8 Private clinic 38.7 10.6 4.2 2.9 0.6 0.2 Traditionalherbalist 66.8 25.4 10.4 11.9 0.4 0.0 Neighborhood midwife/nurse 87.5 48.4 29.1 63.3 18.6 5.9 ONG clinic 65.9 21.6 14.8 27.0 7.0 2.9 Pharmacist 63.8 27.0 14.1 15.1 6.0 2.9 Total 57.6 21.2 10.3 15.9 4.2 1.6 Source:StaffEstimatesbasedon the Guinea-BissauLightHouseholdSurvey(ILAP) Data,2002 - 3 4 - 3.20 Food and auto-consumedenergy account for significantshares of household spending. Across quintiles, about 40 percent o f household expenditures are allocated to the purchase o f food. Expenditures on auto-consumed4* food and auto-consumed energy, however, seem to be influenced by the economic status o f the household. The values of auto-consumed food and auto-consumed energy decrease as the wealth status o f the household increases. For example, auto-consumed energy in households in the lowest quintile is estimated at 28 percent o ftotal expenditures but systematically decreasesto 11 percent inthe top quintile. Considering the acute energy situation in Guinea-Bissau, it is not surprising that the value o f auto-consumed energy i s so high in the poorest households. As discussed above, the unreliable supply o f electricity requires that households look for alternative sources o f energy. A small number o f households that are economically well-off purchase generators and solar panels to supplement the supply of electricity. The vast majority o f households, particularly the poor ones, which cannot afford these alternative sources o f energy, are forced to use firewood and charcoal, which they often collect, or prepare themselves, to satisfy their energy needs. The share of expenditures on food i s higher in Bissau than in the other regions. As expected, the. regions o f Oio, and BiomboBolama, which are among the poorest in the country, have the highest shares o f expenditures on auto-consumed food, whereas Oio and QuinardTombali have the highest shares o f auto-consumed energy (such as collection of firewood and other combustible substances). 3.21 Salaries from private and public sectors and income from the sale of agricultural products are the main sources of income. These sources o f income are however sensitive to the economic status o f the household as well as the region of. residency. Expectedly, the share o f salaries in household income i s lowest in the poorest quintile (about 19 percent) and highest inthe top quintile (about 43 percent) (see Table 3.13). Conversely, revenue from the sale o f agricultural products is highest in the lowest quintile and decreases as wealth increases. Overall, the share o f total revenue obtained from private and public sector salaries as well as from non-agricultural products i s significantly higher in Bissau than in any other region. The regions o f Bafata, QuinardTombali, and Oio, derive the highest shares o f income from agricultural products. Even though all these regions are rice producers, rice farming in Bafata i s more modernized than the other regions. Whereas the other regions use mainly traditional and labor intensive methods, Bafata i s a beneficiary o f a Chinese pilot program which uses a combination o f animals and tractors for rice cultivation. Hence the 52 percent share o f household income from agricultural products in Bafata is mainly from the sale o f rice (see Table 3.14). 3.22 The overalleconomic situation of households and their communities at large seem to have deteriorated compared to the year prior to the survey year. The majority o f household heads, across quintiles, indicated that the economic situation o f the household was worse than the previous year (see Figure 3.1). Similar response was obtained when the question was referred to the perceptions on the economic situation o f the community. 42Auto-consumptioninthis particularsurvey is definedas the productionof an itemfor the consumptionof the household. The intendedpurposeofproducingthe item does not necessarilyhaveto be consideredas arevenue-generatingactivity. - 35 - Table 3.13: Revenue Shares by Economic Status in 2002 (in percentage) Sources\Quintiles Poorest 2 3 4 Wealthiest Local Drinks 3.67 3.72 2.65 2.90 1.57 Livestock 2.88 2.04 4.12 2.25 1.34 Animal Products 0.71 0.19 0.11 0.09 0.17 FishProducts 2.57 6.84 3.38 3.31 2.73 Firewood 2.18 0.58 0.95 0.42 0.50 Salary Agric. Sector 2.86 1.74 1.29 1.26 0.47 Salary Private Sector -- 8.06 17.14 21.19 19.42 29.28 Salary- Public Sector 8.00 12.82 19.97 13.92 13.06 Rentals 13.07 7.99 9.33 9.60 7.62 Pensions 0.66 1.10 0.75 0.44 1.93 ~ Transfers 5.86 7.67 6.74 13.84 12.49 Non-Agriculture 7.31 6.09 5.49 7.89 16.12 Agricultural Products 42.18 32.07 24.04 24.67 12.72 T&l 100 100 100 100 100 m:StaffEstimatesbasedon the Guinea-Bissau Light Household Survey (ILAP) Data, 2002 Table 3.14: Revenue Shares by Region in 2002(in percentage) Sources\Regions Bissau Bafata Gabu Cacheu Oio Biomboh3olama QuinardTombali Local Drinks 1.34 1.32 0.29 6.32 2.23 7.08 3.75 Livestock 0.08 7.04 9.93 0.91 8.68 1.62 1.81 Animal Products 0.00 0.45 1.15 0.47 0.26 0.27 0.10 FishProducts 0.61 0.61 0.18 8.86 6.32 17.59 5.72 Firewood 0.58 0.14 0.28 0.46 3.05 0.52 0.39 Salary - Agric. Sector 0.66 0.35 1.83 2.18 1.54 1.44 2.29 Salary - Private Sector 33.15 9.58 21.59 5.19 9.15 4.64 15.48 Salary - Public Sector 20.92 2.78 4.52 4.78 5.05 5.84 6.27 Rentals 6.40 6.56 3.63 26.73 4.42 13.03 7.70 Pensions 2.00 0.20 0.45 0.02 0.56 0.48 0.39 Transfers 13.03 13.81 9.69 6.85 6.94 4.93 6.80 Non-Agriculture 14.77 4.67 15.89 4.12 4.27 7.76 4.01 Agricultural Products 6.47 52.49 30.57 33.10 47.53 34.81 45.30 Total 100 100 100 100 100 100 100 Source: StaffEstimatesbasedon the Guinea-BissauLight HouseholdSurvey(ILAP) Data, 2002 Figure3.1: Perceptionson the Evolutionof the Economic Situation of Householdsby Quintile in 2002 Wealthiest 4th Quintile 3rd Quintile 2nd Quintile Poorest National 0 20 40 60 80 100 Worse Same fl Bener Source: Staffestimatedbasedon the 2002 ILAPsurvey. 3.23 The deterioration of the economic situation also seems to have aggravated the ability of household heads to adequately feed their families. That is, in the year prior to the survey year, a higher percentage of household heads were unable to meet the - 36 - food needs o f their households. With the exception o f the wealthiest quintile, the percentage o f household heads, in all other quintiles, that had difficulty, satisfying the food needs o f their households inthe previous year, was higher than the national average (see Figure 3.2). When the data i s analyzed by region, it is evident that more than half o f the households in regions like Bafata, Gabu and Oio, were often confronted, in the previous year, with the problem o fproviding adequate food for their households. Figure3.2: ProblemSatisfyingthe FoodNeeds of Households by Quintile in 2002 Wealthiest 4t h3r tn Poorest d National 0 2 4 6 8 10 0 0 0 0 0 Ofte 0 Sometimes NevedRarely w:Staff estimatedbasedonthe 2002 ILAPsurvey. n 3.24 Recent data shows that a third of the householdshave only one meala day andjust one in four households have 3 meals per day. Regarding the quality o f the meals, rice is the main staple and fish i s the primary source o f protein. While fish i s widely available, the meals in one out o f every ten households did not have any protein source during the week before the survey (60 percent o f the households did not include any other animal protein). Most households interviewed in 2005 (87 percent) indicate that over the last year they went without what they considered enough food to feed their families. Of those households that indicated not having enough food, half o f them manifested that they experienced deprivation for at least two to three months, mostly duringthe dry season. 3.25 Women headship of the household and migration are believed to have contributedin improvingfood security.The participation o f more women in a myriad -- seems to provide them with the ability to better assure the food security o f their o fpetty revenue generating activities -- both domestically and inthe context o f migration households ihan iheir male counierparis who are mosiiy engaged in formai aciivities, like working for the government where the payment o f salaries i s highly unreliable (see Box 3.3 for a discussion on food security). Anecdotal evidence suggests that the characteristics o f migration may be different in Bissau from the rest o f the country. Residentso f Bissau typically travel to Portugal or Brazil, where some o f them angage in different types o f economic activities to raise money for their families back in Guinea- Bissau. Most o f the temporary migrants from rural areas, however, typically travel to neighboring countries, especially Senegal (some with agricultural products sale at relatively higher prices in Senegal) where they clean houses, wash clothes (in relatively affluent homes), work as tailors and laborers at construction sites to raise money, which - 37 - they invest in farming, especially rice cultivation when they return to Guinea-Bissau, several months later. To further explain the economic well-being o f households headed by women, it is worth noting that most o f the people, who engage inthese cross-boarder activities, are women, some heads o fhouseholds. Box 3.3: Perceptions of Food Security: Meeting the Food Needs of the Household A simple regression analysis, based on the 2002 householdsurvey data, is used to shed more light on the impact of various household characteristics on meeting the food needs of the household, when controlling for other characteristics. The results, inthe table below, indicatethat the migration status of the head, the sector of employment andaccess to basic servicesare majordeterminantsof the problemof meetingthe food needs of ahousehold. Gender of the HouseholdHead:Inrural areas (rest ofthe country), the femaleheadshipofahouseholddiminishesthe likelihood that the food needs of the householdwill not bemetby 23 percentagepoints comparedto householdsheaded by men, which is the reference variable. This result is a further confirmation of earlier findings that female headed. householdsare economicallybetter-offthanmale-headedhouseholds. Migration Status of the Head: Heads that have migrated overseas or domestically, at least once, have a lower probability o f havingdifficulties meetingthe food needs of their households.The impact of the migration status of the head is higher in urban areas (Bissau) where households are 36 percent less likely to have this problem than in rural areas (rest of the country) wherehouseholdsare 24 percentless likely to fail to meetthe foodneeds of the household. Sector of Employment: The results suggest that the employment of the head in sectors like TransportKommerce, EducatiodHealth and Administration is likely to improve the chances of meeting the food needs of the household. These effects are particularly high in urban (Bissau) areas and to a lesser extent, in rural (rest of the country) for heads employed in TransportKommerce who are 73 percent and 30 percent respectively less likely to have dificulties feedingtheir householdscomparedto headsworking inAgriculture, paradoxically. Access to Basic Services: The proximity ofhouseholdsto basic services presentssome interestingresults. Households located 15 minutesor less to Public Transportationinurban(Bissau) and rural (rest of the country) areas are associated with a lower probability that the heads would have difficulty meetingthe food needs of the household. This effect is especiallystronginurbanareas where the likelihood that the foodneeds ofthe householdwill notbemet is diminished by 86 percentagepoints comparedto ahousehold inthe same area of residency but locatedmore than 15 minutes from public transportation.Similarly, access to secondary schools and health facilities also make it less likely for heads of householdsto haveproblems feedingtheir households.These effects are only observedinrural areas, however. Impactof SelectedFactorson the Problemof MeetingFoodNeeds in2002 Full Sample Urban Rural Gender :Household Head is Female N S NS -0.23 8 . Migration Statusof Head Migrated (at least once) -0.24 -0.36 -0.20 Sector of Employment(Head) Constructionlhdustry N S NS NS TranspotVCommerce -0.42 -0.73 -0.30 EducatiodHealtWSeices -0.37 -0.64M Administrations -0.40 - -0.80 NS Access to BasicServices(in minutes) Potable Water ( 4 . 5 ) 0.33 N S 0.52 Food Market ( 4 5 ) 0.42 0.43 0.52 Public Transportation ( 4 5 ) - -0.29 -0.86 -0.28 Primary School ( 4 5 ) -0.25 NS N S SecondarySchool (45) NS NS -0.35 ~ HealthFacility ( 4 5 ) NS NS -0.32 WorldBankstaffestimates.NS:Not significant.Displayedmflicienuare significantwith a 10% level of confidence. Undalinsdcocflicients are significant with a 5% Iwd of confidence. Boldcocfficienu are significant with a I%INSIof confidence. Omittedcategwiea: Gender of Head(Male); MigrationStatus of Head( N N Migrated); Sector of En@oymsntof Head(Ag~iculhlrs);Access to ~ BasicServices(30 minutesor m e ) . - 38 - 2. Determinantsof Welfare 3.26 Poverty profiles are informative but they also have limits. The main drawback i s that they cannot be used to assess the determinants o f poverty. For example, the fact that some household group i s poor (say, agricultural workers) may be due in large part to other characteristics o f this group (say, the educational level o f the group's members). In order to provide more insights into the determinants or correlates o f poverty, a regression analysis i s carried out in table 3.15. A regression analysis o f the determinants o f well- beingwith three dependent variables is used: the logarithm o fthe per capita consumption o fhouseholds, the logarithm of the income per capita o f households, and the logarithm o f an assets index that aims to capture the wealth o f household^.^^ This section discusses the findings o f such analysis for Guinea-Bissau usingthe 2002 light household survey data. To assess the impact o f various characteristics on the dependent variables o f interest, the analysis relies on linear regressions. Separate regressions are provided for the full sample" and, where possible, for rural and urban samples o f the data. The key determinants of households identified in this analysis reflect the information available in the survey database, and, therefore, do not pretend to represent a perfect household model for Guinea-Bissau. 3.27 In rural areas, and more so in urban areas, a unit increasein the number of infants and children is likely to cause a decrease in per capita consumption. An increase in the number of, infants, children or adults in a household i s likely to cause a* decrease inper capita consumption. To some extent, this is an automatic result since the indicator o fwell-being depends directly on household size. Note that the negative impact o f having more adults i s not statistically significant for per capita consumption in urban areas, perhaps because o f better employment opportunities there so that adult members provide through work for their consumption needs. Note also that the impacts on income per capita and on assets are much weaker. Infact, a unit increase inthe number o f adults i s expected to have a positive effect on asset accumulation (this variable i s not normalized byhousehold size). 2 - 3.28 In rural areas, female headed households tend to be better off. In female headed households inrural areas, consumption per capita and the accumulation o f assets i s likely to be higher than inhouseholds headed by men, all other things being equal. For example, female headed households inrural areas have on average consumption levels 20 percent higher than households headed by male counterparts. A similar finding i s observed for the accumulation o f assets, albeit to a smaller degree. This result is a clear indication that female headed households are not necessarily worse o f f than households. headed by males. 3.29 In rural areas, households headed by people who are between the ages of 15 and 35 and those who are between the ages of 35 and 55 are likely to increase the 43 The main regressors of the modelinclude: (a) family structure variables and their square (number of infants, children, and adults), @) the characteristicsof the householdhead (the gender of the head, the age group the headbelongs to, the marital status of the head, and the migration statusof the head, the head's level of education, hisheremploymentstatus, hisher sector of activity, whether he/she. works in the public or privatesector); (c) the regionwhere the householdis located; and (d) householdaccess to basic services suchas potable water, schools, public transportation,food market andhealthfacilities. - 3 9 - asset holdings of the householdby about 4 percent higher than those heads who are 55 and older. The marital status o f household heads seems to have a positive impact on consumption per capita and on the accumulation o f assets. In rural areas, the expected level o f consumption, for household heads who are single, married (monogamous) and those who are married (polygamous) is respectively 19percent, 15 percent and 16 percent higher than the consumption levels o f households headed by those who are divorced or widowed.44 Inurban areas, however, only households headed by those who are single are likely to increase consumption per capita. In fact, the magnitude o f the effect is pretty strong at 35 percent, compared to heads that are divorced or widowed. The results also suggest that rural households with heads who are married(monogamous), have a slightly higher level o f asset holdings than heads who live in those areas and are divorced or widowed. There i s no evidence that the marital status o f heads has any impact on the expected levels o f income. 3.30 As the level of educationof householdheads increases,so is the impactit has' on consumption per capita, income per capita and the level of asset does accumulation. In rural areas, consumption increases by 12 percent for heads with secondary education and by 35 percent for heads with tertiary education as compared to heads with no education at all. Inurban areas the effect is even stronger at 24 percent for secondary school educated heads and 53 percent for heads with tertiary education. The impact o f education on the accumulation o f assets is also high in both urban and rural areas for assets. In urban areas for example, asset holdings increase by 8 percent, 21 percent and 48 percent respectively for heads with primary, secondary and tertiary' education, whereas in rural areas, the gains are 4 percent, 16 percent and 43 percent respectively. The impact o f education on income appears to be limited to urban areas where incomes for households with heads with tertiary education are 70 percent higher thanincomes for headswithno education at all. 3.31 For household heads living in rural areas and employed in sectors like Transport/Commerceand EducationDIealth,incomeper capita is likely to increase by 47 percent compared to heads working in the agricultural sector. This finding- confirms the presence o f low productivity inagriculture relative to the other sectors o f the economy. Inurbanareas, however, the only sector which seems to have a positive impact on income i s TransportKommerce, which increases income by 46 percent. Rural household heads who are employed in Transport/Commerce and in the fields o f EducatiodHealth are likely to increase the asset holdings o f their households by 24 percent and 15 percent respectively. It is worth noting that in these areas, working in the Industryand Construction sectors can also enhance the accumulation o f assets, to a much smaller degree. Contrary to our expectation, however, there i s likely to be a 17 percent reduction in consumption per capita for households whose heads work in the healtWEducation sector in rural areas. This phenomenon may be due to the effect o f frequent salary payment delays and arrears in these sectors as experienced in the past, which may adversely affect consumption patterns. Urbanhousehold heads, who work in 44Inthe case ofGuinea-Bissau,as women tendto bebetteroff comparedtomen,polygamoushouseholdare likelyto bearhigher income and consumptionlevels and therefore lesspovertyincidence. - 40 - the private sector, are likely to increase income per capita by 42 percent compared to their counterparts who work ing~vernment.~' 3.32 Proximity of households to infrastructure positively affects their welfare situation.Another set o f variables inthe regression which clearly matters for standards o f living relates to geographic location. Living nearby a school, a health facility, and means o f public transportation tend to be positively associated to consumption, income and assets. By contrast, those households who live near food markets seem to be poorer,- because these tend to take place inpoorer neighborhoods. What is more important i s the fact that controlling for all the characteristics discussed above, households who live in Bissau, Bafata, Gabu, Cacheu, Biombo/Bolama, and QuinardTombali are better o f than households living inthe reference category o f Oio, the poorest region inthe country. For example, living inBissau i s associated with a 79 percent increase inincome'comparedto residing in Oio. More generally, the gains observed for Bissau explain much o f the migration patterns observed in the country, and the fact that Bissau itself has relatively highlevels ofpovertyprobablyinpartbecause o fmigration. 3.33 The availability of public transportwithin 15 minutesof householdsseems to have the most positive impact on consumption and the accumulation of assets especially in urban areas. For example, the results suggest a 39 percent increase inthe assets for urban households with easy access to public transportation compared to households located in the same areas but not as close to public transportation. Primary schools situated close to households in urban areas are associated with a 72 percent increase in income but a 22 percent decrease in assets. Secondary schools located 15 minutes from households appear to have an incremental effect only on the accumulation o f assets inrural areas. Accessibility to health facilities i s likely to increase consumption in both rural and urban areas as well as have a positive effect on income per capita in rural areas. 3.34 Ruralhouseholds whose heads have migrated(at leastfor a month in the last 12 months) have experienced a small increase in the level of asset accumulation compared to households whose heads have never migrated. Temporary migration- serves an important livelihood purpose in rural areas. In addition, those with kin or family in urban areas with sufficient means often send their children to live with their relatives in the towns and cities to enable them to continue with their studies. Some ethnic groups also engage in seasonal migration from one rural area to another, either in pursuit o f wage-labor, for trading and commerce purposes, to return to their "native lands" to engage in rice production, or to lead their livestock through transhumance towards more fertile lands. Others have emigrated from the Casamance region o f Senegal and have settled indefinitely in the northern areas o f Guinea-Bissau. Others again,' particularly from the northern and eastern areas o f Guinea-Bissau have permanently emigrated into neighboring countries or to Europe (primarilyPortugal and France). 45 The results do not provide any evidence of the impact of the type of employment on any of the two other dependent variables. -41 - Table3.15: Impactof Various Characteristicson HouseholdWelfare in2002 Consumption Income Wealth (per capita) (per capita) (level of assets) Full Full Full Sample Urban Rural Sample Urban Rural Sample Urban Rural FamilyStructure Numbkr ofinfants (under- 5s) inhousehold -0.12 -0.18 -0.08 -0.13 N.S. -0.15 -0.024 -0.06 N.S Square of number of infants inhousehold 0.01 0.02 NS NS NS 0.025 NS NS NS Number ofchildren (aged 5- 14) inhousehold -0.13 -0.20 -0.10 -0.19 -0.19 -0.19 NS NS NS Square of number of children inhousehold 0.01 0.02 0.01 0.02 NS 0.02 NS NS NS Number of adults (aged 15- 64) inhousehold -0.12 NS -0.16 NS NS NS 0.024 0.05 NS Square of number of adults inhousehold 0.01 NS 0.01 NS NS NS NS NS N S Age of Household Head Age group of Head (<35) NS NS 0.08 NS NS NS - NS 0.04 0.05 Age group of Head (>=35 -- <55) NS NS NS NS NS NS - NS 0.04 0.05 Gender of Head HouseholdHeadis Female 0.13 NS 0.19 NS NS NS - NS .os 0.07 Marital Status of Head Single 0.26 0.35 - NS 0.19 NS NS NS NS NS Married (Monogamous) 0.01 NS 0.15 NS NS NS NS NS - 0.07 Married (polygamous) - 0.13 NS 0.16 NS NS NS NS NS NS Migration Status of Head Migrated (at least once) 0.10 0.16 0.10 NS NS NS 0.05 NS 0.05 Educationof the Head Primary Education NS NS NS NS NS NS 0.06 0.08 0.04 SecondaryEducation 0.17 0.24 - NS 0.12 NS NS 0.19 0.21 0.16 Tertiary Education 0.51 0.53 0.35 0.55 0.70 NS 0.48 0.48 0.43 Sector of Employment (Head) Constructionhdustry NS NS NS NS NS NS 0.09 NS 0.09 TransportKommerce NS NS NS 0.60 - 0.47 0.46 0.21 - 0.15 0.24 Education/Health/Services NS NS - -0.17 0.54 NS - 0.17 0.48 NS 0.17 Administration NS NS NS 0.32 NS NS 0.10 NS NS Type of Employment (Head) Private Sector NS NS NS NS 0.42 NS NS NS NS Business Owner NS NS NS NS NS NS NS NS NS Access to Basic Services (in minutes) Potable Water ( 4 5 ) -0.16 NS NS NS NS Ns NS NS 0.10 Food Market ( 4 5 ) -0.1 1 NS NS -0.51 - -0.50 -0.50 -0.05 NS NS Pub. Transportation ( 4 5 ) 0.12 NS - NS 0.12 NS NS 0.06 0.39 -0.06 Primary School (45) NS NS NS - - NS 0.25 0.72 NS -0.22 0.05 Secondary School (<15) NS N S NS NS NS N S 0.09 NS 0.15 Health Facility ( 4 5 ) 0.16 0.25 - NS 0.12 NS 0.24 NS NS NS RegionalDummies Bissau 0.35 0.79 0.43 Bafata 0.24 NS 0.13 Gabu 0.27 - -0.34 0.13 Cacheu 0.15 0.29 0.05 BiomboBolama 0.32 0.40 NS m:QuinardTombali 0.18 NS - 0.06 World Bank staff estimates.P Not significant. Displayedcoefficients ar gnificant with a 10percentlevel o fconfidc :e.Underlined coefficients are significant with a 5 percent level of cc dence.Bold coefficients are significant H a 1 percentlevel ofconfidence. Omitted categories:Age Group of Ho hold Head (55t); Genderof Head (Male) arital Status of Head (DivorcedlSeparatedidowed); Migration Status of Head(Never Migrated); Education01 :ad (Never Attended); Sector ofEmployment ofHead (Agriculture); Type o fEmployment (Government Employee); Access to Basic Services(30 minutesor more); RegionalDummies (Oio). - 42 - c. LIVELIHOODSTHEPOOR OF 1. Livelihoods of the Urban Poor46 3.35 While the poverty rate on an aggregate level tends to be less in urban areas, increasingly in Guinea-Bissau, poverty and vulnerability is becoming an urban issue, with many urbanhouseholds, for parts o f the year, living on only one meal each day - a phenomenon referred to in Guinea-Bissau as urn tiro - the "one shot". Moreover, there are indications that many urban dwellers are more vulnerable to particular shocks than rural populations. Even though their financial incomes tend to be higher, many lack assets (including access to kinship and social networks, access to land) which constrains' their ability to cope with unexpected stress and uncertainty. There are multiple causes contributing to this situation, including high levels o f unemployment, low wages, non- payment o f salaries, poor access to basic social services and infrastructures, etc. Independently o f the place o f residence (rural, urbanor peri-urban), most families cannot survive with barely one income source, making the most common feature o f livelihoods in Guinea-Bissau the diversification of strategies to make ends meet. A string of activities by various household members i s thus required. The survival o f families i s guaranteed by a combination o f several income generating activities (formal and informal). 3.36 The informal sector plays a significant role in livelihood strategies of urban dwellers. As has been described in the context o f the waning influence of the state, particularly in rural areas, Guinea-Bissau has been experiencing an extensive process o f informalization, particularly when it comes to the livelihood strategies available to the majority o f the population. Informalization o f livelihoods, while characteristic across Guinea-Bissau, i s a particular feature o f the livelihoods o f the urbanpoor. More than 90` percent o f the urban families recently surveyed in urban areas, lives essentially o f activities in the informal sector (`ffazer bida ",making a living in Creole-Portuguese), or o f a mix o f informal and formal (mainly public sector) activities. Trade and commerce, most o f which is informal, play a dominant role as livelihoods strategies o f urban households. Women have historically played an important role as traders in Guinea- Bissau. These so-called bideiras, many o f whom come from the coastal ethnic groups (Manjaco, Mancanha, Pepel, etc.), mainly trade in foodstuffs, such as locally produced vegetables, fruits and alcoholic drinks (such as cashew wine), roasted groundnuts, and- fish. Many also cultivate small horticultural plots for consumption and income. InBissau, where the land traditionally belongs to the Pepel ethnic group, this often occurs on land that i s either borrowed or rented during the dry-season when the land i s not being used for rice cultivation. As many o f the local products are seasonal, however, sellers often need to complement these activities by engaging in other strategies when these products are out o f season, such as the collection and sale o f firewood and charcoal. Many women also engage in the provision o f personal services, including doing domestic work for others, dressmaking, weaving (etc.). 46InadditiontodrawingontherecentMEP/JBN/World Bank(2005) survey, this sectionalsorelies ontherecentsurveyofinformal livelihood strategiesprovidedby Louren$o-LindelI(2002),as well as diagnostic reports on informal livelihoodspublishedby MEP (Paulo and Jao, 1996; Cardosoand Imbali, 1996; Monteiro, 2001). - 43 - 3.. 3.37 Informality is also a common feature of the labor market. Duringperiods o f harvests, some people, particularly younger women and youth, seasonally migrate towards the rural areas o f the country to offer their labor to farmers, particularly cashew producers (an activity referred to locally as pirmi). During this period, they set up- temporary residence in the interior o f the country, and live and work with relatives or friends. Others simply work alone, offering their services to small cashew producers. Remuneration is either incash or in-kind,such as cashew, which i s then frequently traded for rice for consumption. Many o f the women also extract cashew juice which i s later transported to the cities and sold as wine, providing a major source o f income duringthe cashew season(April to July). 3.38 Women more than men often rely on informal activities as major livelihood- strategy. Women's role as traders goes back to pre-colonial times. Particularly for Bissau, women have been pivotal in ensuring the regular supply o f fresh foods. Small garden agriculture, essentially practiced by women, is a very important activity at the urban level (existing estimated by UNDP suggest that more than 2 000 plots were identified in the green belt o f the city o f Bissau). The principal products are vegetables for internal consumption that are sold in the local markets. Among urban households, some 30 percent practice small garden agriculture, which during the dry season covers 70 to 80 percent o f the demand for fresh vegetables; while in the rainy season would reach up to 60 percent. 3.39 The participation o f women in market activities has particularly intensified following the process o f market liberalization that was initiated in the mid-1980s. According to some studies o f informal activities in Bissau, this may have resulted from an attempt to compensate for households' declining incomes throughout this period as well as due to women's increasing expenses as the state retreats from the delivery o f social services.47 As came out o f the urban focus groups, women, have in some cases become the main breadwinners in the household - which according to some men made women the defacto heads o f the h o u ~ e h o l dThis . ~ ~ i s also to some extent born out in the findings from the 2002 household data which suggest that female heads o f household tend to be better o f f than male heads o f household. According to INEP, this i s increasingly leading to a profound transformation o f the notion o f the `family' in particularly urban areas o f Guinea-Bissau. This "inversion" o f gender roles, they suggest, is on the one hand leading to increasing independence and autonomy for some women within the household, but which on the other hand has led to situations o f instability. within the family, sometimes resulting in separation and divorce, putting further strains on the capability o f households to cope.49Nevertheless, while potentially better off than men, women are often more vulnerable given that they are the ones that are responsible for most family expenses, such as clothing, education, and health expenses. 47Gomes and Duarte, 1996: 98, 100; Lourenqo-Lindell, 2002: 77. 48MEP, 2005: 17. 49MEP, 2005: 28. This latterpoint, moreover,correspondswith the findings from the 2002 Light HouseholdSurvey that suggested that divorcedor widowed heads of householdin Guinea-Bissauare generally worse off. - 44 - 3.40 Salary earning activities represent men's main livelihood mean. For urban men, casual work (surne) is increasingly the main activity and livelihood strategy as formal wage opportunities become limited. Most urban men indicate that they are "on call", waiting for temporary jobs - typically in construction (incl. bricklaying), loading work (often at the dock), and transportation (taxis, private buses) - to appear on the market. While there particular activities pursued depend on the location (neighborhood),. ethnic group and skills o f the individuals, most o f the men end up unemployed and peddling in the streets. The situation has worsened over the last decade, as the number of informal wage-seekers and operators in urban areas has been swelled by an exodus o f youth from rural areas in search o f a better life. Even children are increasingly turning to the informal sector to assist households in making ends meet.50 Some, though mainly men, havejobs inthe formal sector mostly as teachers or health workers and other low- wage public sector employees, including employment by the military or police. A majority o f these, however, aim to complement low and irregular payment o f salaries by- also turning to the informal sector, and often juggle multiple activities to ensure their livelihoods. 3.41 In addition to the female traders, the bideiras, referred to above, some men, particularly those drawn from the Eastern ethnic groups (Fula, Mandinga, etc.) also play a historically important role as traders, reflecting long indigenous trade traditions in Guinea-Bissau and the broader ~ub-region.~~These, who go by the name o f djilas, are mobile traders who tend to concentrate in the trade o f imported foodstuffs and rice, and who in recent years have become dominant in Bissau. Inurban settings, these men have recently also been joined by women also drawn from the Eastern groups. Together with the bideiras, the djilas arepart o f"a marketing system [, .]inwhich traders are linkedby . shifting and flexible ties into a decentralized and unbounded network that connects markets located indifferent areas."52 These markets include lumos, so-called weekly and rotating markets spread around the country. Some o f these traders may be considered "formal" in that they are registered and hold trade licenses, but due to their constant geographical mobility and the relatively small size o f their enterprises, most o f them easily escape registration and the various taxes and regulations o f the state.53While some o f these traders have been able to buildprosperous trade careers, often through engaging in vertical business networks headed by import/export firms, a large share of those households that rely on trading and commerce as a primary livelihood strategy seem confined today in low-income activities. Many indeed, live from hand to mouth, and are barelysurviving. 50 Cardoso and Imbali (1996: 229) have also documentedan increasinglevel of street childrenrecentlyin Bissau. Inrecentyears, particularlyinthe years after the war, there hasalsobeenan increasinglyvisiblepresencein Bissau(especially in the large Bandim market) of merchantsand traders from neighboring countries and others in the sub-region (particularly, Senegal, Mali, Guinea-Conakry,Mauritania,andNigeria), thoughtheir presenceis also notedin otherregionsprimarily alongthe ancient trade routesthroughthe Eastemprovincesof the country. 52 Lourengo-Lindell,2002: 76. 53 While some of these do pay a daily fee to the municipalcouncil, and are therefore supposedly "registered" and, hence, "formal" traders, according to a survey conducted by Lourenqo-Lindell (2002: 74) most of the ones that rely on these strategies for their livelihoodsdo not. Inany case, for all intents and purposes, even those that do pay the daily fee were involved inactivities that could otherwise be described as "informal" - activities where participantslacked a written work contract, if employed, and which offered highlyirregular incomes. - 45 - 3.42 Inperi-urban areas outside of the Bissau metropolitan area, as well as inprimary and secondary towns in the regions (where the regional and sector state administrations are based), livelihoods are hrther intertwined with rural / agricultural activities. Indeed, in the peri-urban town of Bubaque, on the island of the same name, most households engage in fishing and exploitation o f forest resources (palm oil and wine). Public employment i s scarce, and only a small minority engages in wage-labor in the small tourism industry on the island. Hence, the main difference between the livelihood strategies o f poor households in peri-urban areas with rural households would be that some o f these households are getting part o f their income from household members working inthe formal wage sector. Nevertheless, the overwhelming majority o f the peri- urban population lives o f f agriculture as in any Tabanca in the rural areas. What characterizes both those households that live primarily o f f agricultural activities and those that rely on income flows from public work and/or services, is that neither make enough from any one activity to guarantee their survival. Therefore, most households are forced to pursue several income and consumption streams from several different householdmembersto ensure their livelihoods throughout the year. 2. Livelihoods of the RuralPoor 3.43 Inrural areas, small traditionalproducers who rely mainly on subsistence farming make up the majority o f the rural population. Only 9 percent o f the national land, or 27 percent o f arable land, i s occupied by larger farmers (ponteiro~).~~ Approximately 90 percent o f the production o f the estimated 90,000 smallholder households goes towards internal consumption; small farmers also cultivate as much as 75-85 percent o f the country's annual cashew production. 3.44 Subsistence agriculture represents the main livelihood strategy in rural areas. What characterizes rural livelihoods, thus, i s their dependence on subsistence agriculture. Rice remains the most widely grown staple crop in the country, although in the East and amongst the Fula and Mandinga corn is the preferred staple crop. Specialization inany one activity i s minimal, however, and diversification o f strategies is the norm- dictated by the necessity to reduce vulnerabilities andminimize risks inorder to ensure food and livelihoods security. Cultivation o f different products with different cycles and demands is considered an important way o f diversifying livelihoods. Cashew (including production and sale o f cashew wine) has played a particularly important role for many households, providing an important source o f income - as well as consumption, if traded for rice - during parts of the dry season (April until July). Other important sources o f both consumption and income come from the cultivation o f peanuts, cassava, and beans, etc. Horticulture (tomatoes, onions, etc) and fruticulture (mango, bananas in particular), and exploration o f forest products (wood, charcoal, straw, extraction o f palm- oil and wine, etc.) are also pursued, partly as a complement to ricekorn for consumption purposes, but increasingly as a source o f income for households. Some also breed chicken and hens, goats and other small animals as risk insurance and to ensure food security. While fishing has traditionally been considered a marginal activity in Guinea- 54Large farmers @onteiros) with landright concessions assignedby the governmentpossessabout 2,200 properties, of which 1,200 are currentlynot underregular production. An averageproperty is 136hectares, rangingfrom 20 to 3,000 hectares. - 46 - Bissau, during times o f poor harvests, or during the regular hunger season, fishing also serves as an important coping strategy for those communities based along the coast and many rivers.55 As noted above for urban areas, migration also serves an important livelihood purpose inrural areas. Those with kin or family inurban areas with sufficient means, often send their children to live with their relatives in the towns and cities to enable them to continue with their studies. Some ethnic groups also engage in seasonal migration from one rural area to another, either inpursuit o f wage-labor, for trading and commerce purposes, to return to their "native lands" to engage in rice production, or to. leadtheir livestock through transhumance towards more fertile lands. 3.45 In the Northern region, cashew farming and small trading are the main livelihoodstrategies.Livelihood strategies o f the rural poor tend to differ across regions and are also influenced by the social characteristics o f households and individual household members (such as ethnicity, family structure, gender, religion, age, etc.). For example, in the sector o f Cai6, inNorthern Guinea Bissau, the main ethnic group i s the Manjacos who mainly live off agriculture, particularly cashew production. In addition to. the Manjacos, the sector i s also populated by migrating Fulas, Mandingas, Pepel, and Mauritanians. Among the male Fulas and the Mauritanians the principal activity is small trade and commerce, while the Pepel that mainly occupy the coastal areas primarily engage in seasonal fishing during the dry season and many return to the region o f Biombo during the rainy season to engage in agricultural activities. In terms of the gendered division o f labor, men tend to be more involved inthe clearing and plantingof agricultural lands, while women - in addition to tending to the domestic chores - are more involved inthe transportation and sales o f the crops. Women from the non-Islamic- ethnic groups, much like in urban areas, are also more actively engaged in the sale and resale o f foodstuffs. 3.46 In the Eastern region, rice and cattle production are the main livelihood means. The East, where the Fula and Mandinga ethnic groups make up the majority o f the population, the men tend to work on corn production inthe highlands, while women tend to cultivate rice in the lowlands (bolanhas). While cotton was for many years the main cash-crop inthe East, supported by large investments in the area by the para-statal. SAGB (the Cotton Society o f Guinea-Bissau), in recent years cotton plantations have been abandoned also here in favor o f cashew c ~ l t i v a t i o nHouseholds in the East also . ~ ~ rely on livestock breeding(mainly cattle), though this is mainly used to ensure livelihood security rather than for purposes o f consumption. Livestock serve as a particularly important resource o f collateral, which i s used to invest in agricultural production, and in some cases also for the emigration o f household members. For those households that engage in the latter, remittances also become an important source o f income. The East, moreover, has for centuries been the center o f the main trading route in Guinea-Bissau. The lumos there, especially in the city o f Gab6, attract mobile trades from all o f the 55 Despite the vast fisherypotentialinGuinea-Bissau,only 10%of fish caughtannually is by domesticartisanalfishers. Indeed, fishing inGuinea-Bissauhas traditionallybeena marginalactivity, mainlyto complementagriculturalactivities.For those households where fishing is one of the livelihood strategies, fishingis on averagepracticedsome4-6 days a month, over 8-10 months,for a total of less than 50 days a year. Accordingto the FA0FisheryCountry Profile (2001), in 1996fishingwas the mainactivityonly of approximately18%of those that engagein fishing, while agriculture was the mainactivity for 78%. 56 Accordingto the focus groups, most of the small farmersabandonedcotton farmingafter the civil war, in 1999. - 47 - countries in the sub-region (Guinea-Bissau, Senegal, Gambia, and Guinea-Conakry, amongst others). The Zumos, however, are most active during the dry season. 3.47 The East, and to some extent parts o f the North, suffer to some extent from drought during the dry season, however, with important negative consequences in terms o f food security inthese regions. Inaddition to the impacts on food security, this has also led to increasing tensions and at times local conflicts over access to water and naturally irrigated lands, particularly between cattle-breeders and agriculturalists. In search for watering holes for their cattle, many livestock breeders engage in transhumance towards across the Eastern regions towards the North duringthe worst parts o f the drought, and in the process often trespass on the lands o f agriculturalist^.^^ 3.48 In the Southern region, fishing and rice farming are the main livelihood means.Households inthe fertile South, despite the many problems interms o f access to services and infrastructure described earlier, are well endowed with natural resources, including fish, andtherefore inmost cases manage to avoid the food security dilemmas o f the East. Indeed, the South is where a majority o f the locally produced rice and food in Guinea-Bissau i s cultivated. Low-land (bolanha) rice cultivation in paddy fields i s the primary activity for most households, followed by the production o f h i t s - pineapple, banana, oranges, etc - as well as exploration o f forest products (extraction o f palm oil and wine) and horticulture. Fishing, while rarely a primary activity for households, is a strategy often used to supplement consumption and incomes, which becomes particularly important in times o f poor rice harvests and during the dry season. Women typically engage in the sale o f fish and production o f wine from honey. Amongst the Balante, women also typically engage in the production and sale o f congutu, a snack made from rice and peanuts. Given the poor road and transport conditions in the South, however, households and communities have a hard time marketing and selling their produce.' Indeed, as a result o f the relative isolation o f many communities, the local economy i s mainly based on bartering and exchange, with rice serving as a common currency. Unable to access markets, the communities are rarely compensated well for their produce. The constraints in accessing markets, and transforming and conserving their products, lead each year lead to the rotting and wastage o f tons o f products, particularly fruits and horticultural produce. Due to the geographical isolation, especially o f these communities, many o f the households aim for agricultural self-sufficiency, But lacking electricity in most Tabancas, transformation and conservation o f the produce i s scarce, making it' difficult for most households to engage inmuch consumption-smoothing behavior. 3.49 In the islands,fishing, extraction, craft work and tourismrepresentthe main livelihoodstrategies.Inthe islands, unlike on the mainland, fishing serves as a primary livelihood strategy. Nevertheless, households still pursue a mix o f livelihood strategies, combining fishing with agricultural activities and the exploration o f forest products. Fishing, extraction o f palm oil and wine, and clearing and planting agricultural fields, is generally the main activities pursued by men. Women sell the fish, and produce- horticultural products for consumption and cash. Young males also take part in fishing and extraction, as well as the sculpting o fwood statues etc for the tourism industry,but in 57Inone of the villages surveyed, Mambonco, inthe regionofOio, respondentsreferred frequent local conflicts between the Mandingaagriculturalists and the Fulacattle-breedersinthe area. - 4 8 - peri-urban areas may also occasionally provide casual labor for tourists and hotels inthe area. For the most part, the tourism industry and commerce on the islands are dominated by foreigners, the former bythe French, andthe latter bymobiletraders from neighboring countries. The latter also work inthe artisanal fishing industry. 3.50 The main constraints to the different livelihood strategies were - inaddition to the low level o f access to basic services mentioned in a previous section - the difficulty in marketing any o f the goods, and the lack o f transformation and conservation facilities for their products. As a result, people have few incentives to work beyond what they need to feed themselves. Across the country, households face a range o f constraints inimproving their livelihoods. Agricultural activities are mainlynon-mechanized, relying inmost areas on manual labor only.58Many households, furthermore, lack basic tools and implements, such as plows and rice husking tools, etc. Access to markets, credit and inputs (such as seeds, fertilizers) is low across the country, something which i s exacerbated by the devastated transport and energy infrastructure, the limited activities o f the private sector particularly in rural and remote areas, as well as a retreating and reduced state with limited capacity and resources to provide agricultural extension services to the rural poor.59 The lack o f certainty, or "guarantees", that results from this, leads to low and suboptimal investments, in addition, o f course, to subsistence level harvests and` consumption. While a lot of these constraints and obstacles could be overcome with a minimal level o f investments, a lot o f these investments presume a present and capable state, as well as a functioning and vibrant private sector. As discussed earlier, however, the general vacuum left by the state, particularly in the regions, has left the provision o f most basic services to traditional and informal authorities and organizations. D. CONFLICTAND POVERTY 3.51 This section seeks to analyze the impact o f conflict on poverty, and the main sources o f conflict in Guinea-Bissau (the methodology used in the analysis is further explained inthe third chapter o fVolume 2).60 3.52 Evidence suggests that Guinea-Bissau's economy would have performed better if there had been no conflict.The estimation results indicate that the country's GDPper capitawould havebeenmore than 40 percent higher in2004 than it actually was ifthere hadbeenno conflict (see Figure3.3). As apoint ofcomparison, inRwandawhere- the human, social and economic costs o f the genocide have been staggering, the estimates suggest that per capita GDP today would be between 25 and 30 percent higher if the genocide had not taken placeY6lwhich suggests a smaller economic impact than in Guinea-Bissau. Much o f the difference between the impacts observed in Guinea-Bissau and Rwanda stems from the fact that in Rwanda, two outliers were identified. First, in 58 In the East, the use of animals for traction and plowing is more common than in other parts o f the country 59 After independence, the Departamento de PesquisaAgraria (DEPA) served as an agricultural researchand extension agency with a - relatively significant presencein the regions. Over time, and particularly following market liberalization in the mid to late 1980s, DEPA reduced its field presenceand shifted its emphasis towards agricultural research.DEPA was ultimately supersededby IMPA (???) which focuses exclusively on research. 6o Also see Lopez and Wodon (1995) who conducted similar work for Rwanda. 61 Lopez and Wodon (2005). - 49 - 1994, the year o f the Genocide, there was a loss o f GDP o f about 40 percent. Yet the following year, there was a rebound (another additive, but this time positive outlier) so that part o f the negative impact o f the conflict was offset. Such a rebound was not observed in Guinea-Bissau, leading to a larger economic impact o f the conflict, even though the loss in human life was substantially less severe. It i s also important to note that in Guinea-Bissau as inRwanda, losses in GDP were observed, but the conflicts did not seem to have a negative impact on the growth rate o f GDP per capita itself. These results could be interpreted as indication that these conflicts generated a reduction inthe stock values o f key economic variables such as human and physical capital, without changing the returns to these stocks. Figure3.3: Impactof the 1998 Conflicton Per Capita GDP 140 130 Counterfactual ~ a3 120 8a *" 110 100 ga 90 80 I b . . . . 60 3.53 Similarly, the results indicate that the poverty incidence would have been lower if the conflict had not occurred. Today, as shown in Table 3.15 below, and following the methodology used in the PRSP for poverty measurement, about two-thirds o f the population i s poor, i.e. with a level o f consumption per equivalent adult below the US$ 2 poverty line in purchasing power parity terms, with 21.6 percent being extreme poor. Ifthe conflict had not taken place -- so that per capita GDP today would be 42.3 percent higher than actually observed -- poverty would be much lower (the results not provided here are similar after correcting for terms o f trade). The results suggest that the share o f the population in poverty today could be around 43.0 percent, instead o f 65.7 percent, while the share o f the population in extreme poverty could be at 7.6 percent, instead o f 21.6 percent. Note that the percentage reduction inpoverty following the 42.3 percent reduction in GDP per capita suggest that the elasticity o f poverty reduction to growth is roughly around one (it is lower for some poverty measures, and higher for others), which is a reasonable estimate according to international experience. The corresponding elasticities for the extreme poverty measures are larger, as expected (it can - 50 - be shown that these elasticities are a function o f the poverty lines - the higher the poverty line, the lower the elasticity). Overall, one inthree persons is inpoverty today inGuinea- Bissau due to the conflict, with an even higher share for extreme poverty measures. Table 3.16: Impactofthe Conflicton Poverty Poverty Poverty Poverty reduction Povertyreduction observed without the inpercentagepoints inpercentversus in2002 survey conflict (2)-(1) baseline (1) (2) [(2)-(l)]/(l) Poverty Headcount index 65.7 43.0 -22.7 -34.6% Poverty gap 25.7 13.2 -12.5 -48.6% Squaredpoverty gap 12.9 5.7 -7.2 -55.8% Extreme poverty Headcountindex Poverty gap 5.5 1.8 -3.7 -67.3% Squaredpoverty gap 2.2 0.7 -1.5 -68.2% 3.54 Yet, security remains a major concern mainly among the poor. Only half o f the households consider that the security situation has improved over the last year (see Table 3.19). The share o f the population that believes that the situation has deteriorated i s higher among the bottom tercile. Data on the sources o f local conflicts are also revealing. 3.55 Land also remains a major source of conflict. Apart from internal family issues, most local conflict situations seem to arise from issues related to land, water, and livestock, especially in rural areas. There i s evidence that poor households tend to rely mostly on traditional authorities inorder to solve conflicts, while the better off rely more on the police. 3.56 Under the current circumstances, it would be difficult for Guinea-Bissau to- achieve the MillenniumDevelopmentGoal(MDG) for poverty reductionby 2015. In the projections inTable 3.17, it assumed that future poverty i s a function of the growth in per capita GDP.62 The results provide the number o f years that would be required with various annual GDP growth rates to achieve cumulative per capita growth rates o f respectively 25 percent, 50 percent, 75 percent, and 100percent. For simplicity, a single population growth rate was usedo f 2.5 percent per year, which i s below the current level, but takes into account the fact that population growth will decline over time (clearly, in the long-run, for some of the large number of years required in the table, the rate o f population growth would decreasemuchmore, but the exercise i s providedjust for giving an idea of what could be achieved in the next 10 years or so, by the 2015 deadline for reaching the MDGs in 2015). The results suggest that ifthe economy were to grow at 4 percent per year, it would take 11 years to achieve a cumulative growth rate o f 25 percent, which would in turn reduce the share o f the population in poverty from the estimated level o f 72.3 percent in 2005 to 58.8 percent by 2020. To give another example, assuming an annual growth rate of 8 percent per year o f the economy, the 62 First, it is assumed that growth in consumption per adult equivalent at the household level as measured in household surveys . follows closely GDP per capita growth, as measuredinthe NationalAccounts, which is distributionalneutral. - 51 - cumulative growth rate would reach close to 75 percent by about 2015 (as shown in the table, the number o f years required i s 9.6). This would in turn lead to a share o f the population in poverty o f about 36.4 percent. While these simulations should be considered with caution, due to the underlying strong assumptions, they do provide an idea o f the magnitude o f the challenges ahead. The message from the table i s somewhat disheartening, as even with much higher growth rates than were observed in the recent past, Guinea-Bissau i s not likely to reduce its level o f poverty well below the level that would prevail today if the conflict had not taken place (this level is estimated at 43.0 percent for the headcount index (see Table 3.16). Based on these results, it is safe to argue that if the conflict had not occurred, the country would have made significant progress toward achieving the MDG target for poverty reduction by 2005 (see Table 3.18). The Government would therefore need to diversify the sources o f growth and implement policies designed to make public spending more pro-poor, in the context of the PRSP Iorder to alleviatepoverty. Share of the Number of years required to reach target population 4% 5% 6% 7%grOwth 8% inpoverty(%) growth growth growth growth Baseline estimate in 2005 72.3 Per capita GDP growth 25% 58.8 11.3 7.5 5.7 4.6 3.8 Per capita GDP growth 50% 47.5 20.5 13.7 10.3 8.3 7.0 Per capita GDP growth 75% 36.4 28.3 18.9 14.3 11.5 9.6 Doubling of per capita GDP 27.9 35.0 23.4 17.7 14.2 11.9 - Current MDGTarget 2015 (PRSP if different) MDG 1: Eradicateextreme Povertyand hunger Population livingbelow the poverty line of 2$/day (2002) 65.7% '* 40%" Prevalenceof underweight children 25% MDG2: Achieve universalprimary education Net enrollment ratio inprimary education (2001/02) 80% (gross) 100% ,, Primary completion rate (2002) 30% 100% MDG3: Promotegender equality andempowerwomen Ratioof girls to boys inprimary school (2002) 41% Ratioof literate female (F) to male (M) ages 15-24 (2002) 81%(F) 41%(M) MDG4: Reducechildmortality Under 5 mortality (per 1000) 214 70 Infant mortality (per 1000 live births) 130 48 Immunization(children under 12 months), including measles 67% MDG5: Improvematernal health , Maternal mortality (per 100,000 births) 349 175 MDG6: Combat HN/AIDS, malariaand otherdiseases Prevalenceof HIV/AIDS 3 MDG 7: Ensureenvironmentalsustainability andaccessto water and 56% 100% sanitation: Access to improved water Source: World Bank G fthe dateindicated inparenthesesinthe first column. "Poverty rate computed at the individual level (the household level poverty is 58.9 percent)''Setas halfo f the poverty rate in 1991. - 52 - Table 3.19: Perceptions on the Security Situations and Sources of Conflict in 2005 Tercile Area Total 1 2 3 Urban Rural ge insecurity situation Improvement 45. 42.2 57.75 54.82 44.66 48.6 Nodifference 9.72 11.97 11.27 12.65 9.92 10.98 Deterioration 42.36 44.37 30.28 31.33 43.89 39.02 No data 2.08 1.41 0.70 1.20 1.53 1.40 Total 100 100 100 100 100 IO0 Sources of conflict (%) Y Land 14.60 21.80 17.42 18.95 17.27 17.91 Water 14.60 13.53 16.67 9.15 18.47 14.93 Family 20.44 12.03 32.58 31.37 15.66 21.64 Livestock 34.31 27.07 17.42 18.95 30.92 26.37 Fishing 0 1.so 2.27 1.96 0 80 1.24 Extractionactivities 0 0 0.76 0.65 0 0.25 Participation to community live 1.46 1s o 7.58 8.50 0.40 3.48 Religion 0.73 Iso 0 0.65 0.80 0.75 Wealth 0.73 1s o 0 1.31 0.40 0.75 Others 13.14 19.55 5.3 1 8.49 15.26 12.69 Total 100 100 100 100 100 Whomdo you turnto incaseofconflict? Police 23.57 15.33 64.54 64.24 15.42 34.69 Traditional authority 56.43 52.55 17.73 20.00 56.52 42.1I Police &traditional authority 9.29 3.65 5.67 3.64 7.91 6 22 Family 5.00 16.79 4 26 3.64 11.86 8.61 Others 5.71 11.68 7.80 8.48 8.29 8.37 Total 100 100 100 100 100 100 m:Staff Estimationbasedonthe 2005 QS. E. CONCLUSIONAND POLICY CONSIDERATIONS 3.57 Guinea-Bissau i s a country with very limitedpoverty data. With the data currently available it is almost impossible to analyze in detail the factors that cause poverty to change over time (growth versus distributional effects), andor to carry out poverty impact analyses in key sectors such as cashew, rice, etc. Currently the authorities' PRSP is being finalized. As the implementation, monitoring and evaluation o f the PRSP will start soon, it is important that such analyses are carried out in order to make the PRSP a more result-oriented framework. In this regard, it is critical to develop a coherent and reliable poverty database over time. One way to achieving this objective i s to carry out a new household survey similar to the 1991 ICOF survey, so as to allow comparability and poverty dynamics analysis. Moreover, the scope o f the next household surveys should be broadened to include: (i) detailed information about households' income and expenditure- and price information o f key commodities such as cashew nuts and rice production etc.; (ii) education and health service delivery; and (iii) and landissues. conflict - 53 - 4. MACROECONOMICAND FISCALPOLICIES FOR PROMOTING SOCIOPOLITICAL STABILITY AND ECONOMIC GROWTH Prior to the 1998 military conflict, Guinea-Bissau's economy performed in a satisfactory manner thanks to the broad economic liberalization carried out by the authorities in the early nineties. The conflict shattered the country's socioeconomic fabric and caused a massive destruction to private capital. Following the conflict, lingering political instability did not allow economic recovery to materialize. I t is imperative that the new administration ensures the continuity of institutions and commits to the reform program put in place since end-2003 by the outgoing transition government. I n that vein, the authorities will need to adopt a comprehensive short and medium term fiscal strategy. In the short-term, the Government will need to pursue priority spending programs such as wage and salary payments, the delivery of social services for civilians and in the security sector. In the medium-term, the authorities will need to accelerate ongoing structural reforms aimed at promoting the development of the private sector; and carry out a broad fiscal consolidation reform with the objective of reducing the size of the wage bill in the context of a PSRprogram. Evidence suggests that a reduction of the Guinea-Bissau's wage bill equivalent to 1 percentage point of GDP is likely to improve growth by about 2 percent on average during 2006-08. The results also suggest that a reduction of the wage bill within the limits of the economy's absorption capaciw, alone, is not suficient to achieve medium- term fiscal sustainability. Achieving a current surplus in the medium-term will require the combination of expenditure contraction and structural reforms aimed at improving the eficiency of tax collection. 4.1 As mentioned in the second chapter, Guinea-Bissau's history o f conflict and political instability has limited the country's economic performance during the past three decades. After independence and nearly two-decade long State-ruled economic policies, the economy was gradually liberalized in the 1980s and macroeconomic performance improved during the 1990s despite a difficult political environment. The 1998 armed conflict interrupted the reform agenda and destroyed the country's social economic fabric. After the conflict, growth resumed during the two subsequent years (1999-00); however, political instability continued to hinder performance throughout the period 2001-03. Starting in 2004, the authorities took a set of measures that contributed to improving fiscal discipline and growth. Given that the sociopolitical situation remains unsettled, public policies aimed at preserving and consolidating peace and social stability should represent the Government's highest policy priorities in the short term. Inorder to achieve this objective, the authorities would need to ensure timely andregular payment o f salaries for the coming twelve to eighteen months starting in 2006.63At the same time, the Government would need to strengthen institutional capacity and improve expenditure control and revenue collection. This would allow limiting pressure on the budget and 63 The remainder of 2005 budget i s expectedto be fully financed providedthat there i s continuity of governanceandreformafter the presidentialelections. - 54 - paving the way for a major fiscal consolidation in the medium term. In this context, fiscal consolidation would allow reducing wage costs to sustainable levels and restoring macroeconomic stability and growth inthe medium and long term. The remainder o f this chapter will successively discuss: (i) recent economic performance; (ii) term fiscal short policies aimed at preserving social stability while enhancing institutional capacity and fiscal management; and (iii)medium and long term fiscal consolidation aimed at promoting macroeconomic stability, poverty reduction and growth. A. RECENT MACROECONOMIC PERFORMANCE 4.2 Guinea-Bissau performed in a generally satisfactory manner during Figure 4.1: Budgetand ExternalAccountsBalances, 1987-98. Following a decade o f a ruinous 1996-04 (in percentageof GDP) State-controlled economic policy, Guinea- Bissau embarked on a comprehensive reform program starting in 1987.64 With the support o f the Bank, the authorities 10 0 conducted a poverty assessment in 1994, 0 -10 -20 which established that nearly four-fifths -20 o f the population lived inpoverty. Inlight -30 .. -40 1996 19971998 19992000 2001 2002 2003 2004 o f the positive macroeconomic outcomes and the urgency o f fighting poverty, the authorities agreed upon a three-year Current primary balance (left axis) Enhanced Structural Adjustment Facility II balanceexcl.grants(leftaxis) Overall ...e..- Ext. cur. Acc. Bal. excl. off. Tr. (left axis) (ESAF) arrangement with the Fund in 1995. Broad liberalization o f the economy contributed to reducing large macroeconomic imbalances. Until end-1997, the country performed in a generally satisfactory manner. Government primary surplus increased from 3 percent in 1996 to 5 percent in 1997. At the same time, the external account deficit (excluding official transfers) improved from 18 percent to 14 percent (see Figure 4.1, above). Inflation -- measured as the change in the consumer price index (CPI) -- decelerated from a record SO percent in end-1997 to 8 percent in early 1998, owing to a restrained public sector demand and the regained stability associated with the adhesion to the CFA franc. Domestic production, particularly in agriculture, accelerated with real GDP growth reachingmore than 5 percent on average during 1994-97. Exports expanded substantially, especially due to better prices for cashew nuts, the predominant source o f foreign exchange earnings. The private sector was emerging and playing a more dynamic role in the economy. To address poor social indicators, medium-term development programs for the education and health sectors were approved focusing on improving basic social service delivery. In this context, the third-year ESAF arrangement was successfully completed inearly 1998, prior to the outbreak o f the military conflict. 4.3 The disruption of the economy was significant during the conflict in 1998. Real GDP in 1998 contracted by about 28 percent, due to a sharp decline o f production As evidenced by successful implementation of the Bank-supported Second Structural Adjustment Credit, SACII (Credit 2019- GUB), approved in 1989and closed in 1994. - 55 - activities in all sectors. Agriculture production declined by about 17 percent, particularly due to significant deceleration inthe production o f cashew nuts and cereals. Most o f the formal industrial, trade and service activities were interrupted inthe last seven months o f 1998. Closing o fbanks and nonpayment o f most wages suppressed the impact o f the war on prices. The armed conflict adversely affected the country's fiscal and balance of payments positions. Marketing of cashew nuts, the main source o f public revenue,65was severely disrupted and merchandise exports and imports (in U S dollar terms) decreased by about 45 and 30 percent, respectively, over the period 1997-98. As a result, the external current account deficit (excluding official transfers) remained high at nearly 16 percent o f GDP and the current primary budget balance, moved from a surplus o f about 5 percent o f GDP in 1997 to a deficit o f about 7 percent o f GDP in 1998 (see Figure 4.1, above). After June 1998, external debt service arrears piled up, equivalent to almost 10 percent o f GDP. Arrears on salaries, goods and services, pensions, and transfers were also built up representing 5 percent o f GDP. 4.4 The economy bounced back during 1999-00 due to the return to Figure4.2: RealGDPandcashew peace and good agricultural ProductionVolumes, 1999-03 (change in performance. During the two years percentage) following the conflict, economic performance improved as a result of 10.0 enhanced security situation and gradual 0.0 resettlements o f displaced populations. 1998,1999'2000 2001h 6 f 2003t 40 Nearly all o f the 300,000 to 350,000 -10.0 persons initially displaced by the conflict -20.0 in 1998 returned to their homes. \I '-. ,' t o Agricultural production, which -30.0 represents nearly 60 percent o f GDP, grew on average by 6 percent in real -Real GDP Growth Rate (left axis) term per annum during the period 1999- - -- - Cashew Production (right axis) 00. Cashew nut production, the leading agricultural sub-sector, averaged 70,000 metric tons over the indicated period (compared to 50,000 metric tons in 1997). Performance in agriculture had positive spillover effects on the economy as a whole (as evidenced by the trends o f real GDP growth and cashew nut production growth shown in Figure 4.2, above). Services grew on average by 15 percent in real terms, largely due to the close interrelationship between transportation activities and the boom in the cashew sector. Industrial activities suffered from heavy damage in infrastructure and electricity supply.66Industrial growth first decelerated by 1 percent in 1999 and then picked up by 10 percent in the following year, thanks to donor support to Government's reconstructionprogram. 4.5 Real annual GDP grew by nearly 8 percent in average during 1999-00. At the same time, Government revenue reached 18 percent o f GDP, and the overall budget Tax and non-tax revenues, excludinggrants, fell by the equivalent of I O percentagepoints of GDP to about 5 percent of GDP, due to significant shortfalls inproceeds from fishing licenses and taxes on internationaltrade. 66 It hasbeenestimatedthat privatecapitallossesdue t propertydestruction and lost of business are estimatedat about US90 million. Electricityproductionplummetedfrom 50 to 20 million ofkilowatts-hour,from 1997to 2000. - 56 - deficit (excluding grants) increased from 14 to 25 percent o f GDP between 1999 and 2000, as a result o f increased post-conflict reconstruction activities. Late in 1999, the Government and the Fundagreed upon a macroeconomic framework for the period 2000- 2001, with the following objectives: consolidate and sustain economic performance; reduce inflation; and limit fiscal and external gaps to financially sustainable levels. Duringthe period through December 2000, progress continued to be encouraging on the macroeconomic front, and the country completed its interim PRSP, reached the decision point under the HIPC Initiative, and agreed on a three-year PRGFprogram with the Fund for the period 2001-2003. 4.6 Inadequatepublicpoliciespreventedthe conclusionof the Fund's first PRGF review in 2001 which resulted in balance of payment difficulties.Early in 2001, the macroeconomic program was found to be substantially o f f track owing to large unbudgeted expenditures mainly on defense, financed by credit from the banking system and promissory notes. Late in 2001 a string o f political crises added to the worsening security situation at the northern border with Senegal in the Casamance region. In this context, military crackdowns by the authorities led to a significant expenditure overrun. As a result the primary fiscal deficit reached 3.7 percent o f GDP in2001 comparedto the targeted surplus o f 0.8 percent under the PRGF program. Consequently, the first review o f the PRGF by the Fundwas not concluded as scheduled in 2001, and the program was declared off-track. After two unsuccessful short-term staff-monitored programs (SMP), efforts to revive the program were abandoned by mid-2002, and the Figure 4.3: ExternalTransfers, 1999-04 arrangement expired at end-2003 without the completion o f a review. Inview o f the 4 5 T disappointing developments, the IMF 40 established that it would be unlikely that 35 Guinea-Bissau would be able to meet PRGF 30 standards inthe near future. 25 20 4.7 In these conditions donor support - 15 (equivalent to 4 percent o f GDP) did not I O 5 materialize as expected, causing severe 0 balance o f payment difficulties. External h 0 0 0 0 N 0 0 N 0 N 0 0 N budgetary supports decreased from US$12 h N million in2000 to US$1 million in2001 (see BOP support in% o f offwial transf (left axis) Figure 4.3). The balance o f payment and Fishinglicenses and other m % of official transf (right axis fiscal difficulties were further fueled by a OfficialTransfers m $minion (leftaxis) record 37 percent decline inworld market prices o f cashew nuts in2001 (see Figure 4.4). Consequently, export volume growth plummeted from 26 percent in 1999 to minus 1 percent in 2002, and Government budgetary revenues as a share o f GDP decreased from 19 to 15 percent during the same period. Inthis context, the external account and budget deficits (excluding external grants) reached 13 and 26 percent o f GDP, respectively, by end-200 1. - 57 - 4.8 The economy became recessionary in 2001 and further Figure4.4: Changesin Exportsand Cashew stagnated through 2002-03. Real GDP Nut prices, 2000-04 (in annual percentage) grew at a rate o f only 0.2 percent by end- 2001, and contracted by 7.2 percent in end-2002. The main contributing factors to the economic contraction in 2002 were 1 10.0 0.0 15.0 the 15 percent fall o f the production of ;;002 2003 2004 10.0 cashew nuts, and lower than expected -20.0 -30.0 5.0 agricultural performance, due to - -40.0 ' A unfavorable weather conditions, and the - ._- CashewPrices 0.0 (left axis) continued suspension o f donor-funded - Exports volume (right axis) policy lending representing about 7 Revenueexcl. grants percent o f GDP. The fiscal situation continued to be precarious due to the sharp decline in economic activity and the implementation o f a number o f policy- decisions outside the emergency financial management framework agreed with the IMF and the Bank. 4.9 Economic performance remained sluggish in 2003. Although the agriculture sector grew by about 5 percent, real GDP grew by only 0.6 percent due to a significant contraction in the other sectors o f the economy. Simultaneously, fiscal management further deteriorated with a substantial diversion o f resources to expenditures taking place outside the legally established budgetaryprocedures. Perhaps the most deleterious action inpublic finance management was the decision by President Yala to increase by more than ten-fold the salaries of the military in 2003. Consequently, the public sector wage billincreased from 8 percent ofGDP in2003 to about 11percent in2004.67 4.10 Economic performance started to recover in 2004 thanks to enhanced fiscal management and increased donor support to the EEMP. During the second half o f 2004, the transition Government formed after the September 2003 military coup took decisive measures aimed at restoring fiscal discipline. The treasury committee,- established in 2003, was reinstated and tasked with implementing a strict cash flow management system. As a result, budgetaryrevenues increased from 15.5 percent in2003 to 17.5 percent by end-2004. It i s worth noting that this performance was largely attributable to improved tax collection inthe informal sector and illegal fishing activities. The Government, however, continued to rely on external assistance for the implementation o f the EEMP in 2004. The economy started to recover in 2004 with real GDP growth reaching 2.2 percent by end-2004. While growth is not expected to change substantially in 2005 due to capacity constrains and continued political uncertainties, performance is expected to improve in the medium term if adequate fiscal and capacity buildingreforms are carried out. 67 Mostpublic sector wages remainedunpaidin the first nine months of 2003 prior to the militarycoup. - 58 - B. SHORT TERMFISCALPOLICY FORSOCIOPOLITICAL STABILITY 4.11 In order to enhance sociopolitical stability, the authorities would need to improve living conditions in military barracks and ensure the payment of public sector salaries, and the delivery of basic social services. As part o f the SSR, the new administration would need to take urgent measures aimed at rehabilitating the country's main military barracks, and providing adequate food and sanitation services to the security sector personnel. The Government would also need to ensure regular payment o f salaries in the public sector. As the private sector i s still recovering from the damage o f the conflict, the public sector represents the main source o f employment in Guinea- Bissau. Hence, manyhouseholds depend directly or indirectly on the income o f a relative who earns a salary in the public sector. Ensuringthe regular payment o f salaries in the civil service and the army would therefore contribute to enhance sociopolitical stability. Another challenge facing the Government in the short term i s the delivery o f basic education and heath services (school materials and fees, and drugs and other medical supplies) inurbanandmost importantly inrural areas where the majority o f the poor live. This includes the provision o f free school materials; the continuation o f the free tuition program inbasic education; and the provision o f drugs at affordable prices. Finally, the rehabilitation o f minimum electricity and water services should also be placed on the authorities' short-term agenda (large scale rehabilitation work may be then be carried out inthemediudlong-term). 4.12 The implementation of these ~~ urgent short-term actions will only be Figure 4.5: Revenue and Recurrent possibleif the internationalcommunity expenditure, 1999-04 continues to support Guinea-Bissau.It 35.0 i s clear that the Government will not be 30.0 able to implement these priority 25.0 immediate actions on its own. The 20.0 Government i s likely to face more 15.0 challenges in delivering basic social 10.0 services. Inthe past five years, only about 5.0 5 percent o f the Government's budget 0.0 1999 2000 2001 2002 2003 2004 went to education and health. These resources mainly served to pay salaries, Recurrent primary spending while school and health non-salary Revenue (includes all grants) 0 Revenue excl. grants spending were mainly financed by external donors. The Government's current fiscal balance has beennegative over most o f the post-conflict era (see Figure 4.5). The Government, therefore, relied mostly on external assistance to balance its current account. As the country i s still recovering from the structural damage of the conflict, this trend i s likely to persist at least for a couple o f years. Budgetary support -- in the context o f the IMF's emergency post-conflict assistance (EPCA), the Bank's Economic Management Reform Grant (EMRG), and the EuropeanUnion's budget assistance program -- are expected to provide more fiscal space to the Government for the payment o fpublic sector salaries inend-2005 and during2006. It is crucial that such support is sustained for some time, while the Government is preparing to engage infiscal consolidation reform over the mediumterm. - 59 - c. MEDIUM LONG AND TERMPOLICY FORMACROECONOMIC STABILIZATION AND GROWTH 4.13 In the medium-term, the authorities would need to restore fiscal Figure 4.6: Evolutionof the Payroll and the Wage discipline through a major fiscal Bill, 1999-2004 consolidation effort. As mentioned earlier, Guinea-Bissau's current fiscal balance has been negative for the past five years (average deficit o f 6 percent of GDP during 2000-04). Several factors are 20 20 T - T 15.0 15.0 believed to have contributed to this 18 5.0 10.0 outcome. First, the public sector wage bill appears as the main contributing element 16 0.0 among the factors under the Government's 1997 1998 1999 2000 2001 2002 2003 2004 control. Following the conflict there was a need for rebuilding the public - - - - Payrollbill in excl. parastatals,in 1000people (left axis) Wage `YOof GDP (right axis) administration as a response to post- conflict reconstruction. Consequently, the wage bill increased from 3 percent o f GDP before the conflict in 1997 to 5 percent o f GDP in 1999, and stabilized around 7 percent o f GDP on average over the 2000-02. In2003, President Yala increased significantly the salary o f the military (8-fold) inorder to gain their support. As a result, the wage bill rose to nearly 12percent o f GDP by end-2004 (see Figure4.6). 4.14 Second, weak capacity for revenue collection and expenditure control has also contributed to the current weak fiscal stance. The personnel of the customs, the main revenue collection agency, lack adequate material and training for implementing custom tariffs and rules o f the WAEMU. Similarly, major expenditure management agencies such as the procurement department o f the Ministry o f Finances (MOF) and the human resource management department o f the Ministry o f Labor (MOL) will need to be reinforced for better management o f public procurement and payroll systems, respectively. - 60 - Box 4.1: Summary of the MainFindingsof the 2001/02 DiagnosticStudies of the PublicSector Enforce the 1994 Administrative Law. Guinea-Bissau's public administration is inprinciple governed by the 1994 Law. Inpractice, however, it continues to be regulated by the 1973 Law, which does not clearly make the distinction between administrative and career positions and remains dubious. Redefine staff ranking systems based on career structure and educational levels. Currently, the civil service uses a hierarchical structure combining career (or rank) and administrative (or position) systems. The different levels o frank andpositionare defined by the letters o f the alphabet (from "A" to "N" for administrative staff 78 percent ofthepayroll; and from "0" to "Z" excluding " W for career staff 22 percent o fthe payroll). As recommended by the public sector reform study carried out in2001, the current system would gain in defining a limited number o f categories in each o f the career and administrative groups based on the country's different educational levels and career structure. Define a performance evaluation mechanism aligned with the remuneration and advancement system. The 1973 Law was amended to introduce an article on performance evaluation. However, the performance evaluation system currently in use remains subjective and does not include a mechanism which allows defining ex-ante individual result agreements for a given period. Moreover, the current performance evaluation mechanismis not fully aligned with the advancement and remuneration system. The current advancement and salary increase mechanisms are not transparent and take little account of seniority andperformance. Strengthen human resource and payroll management capacities of the Ministry o f Labor. The capacity o f the Ministryo f Labor and Civil Service to manage humanresources and the payroll remains very weak. Inparticular, the General Direction incharge o f the management o f human resources does not have adequate tools for centralizing and harmonizing the management o f the payroll system (civil and military). Reduce the wage. The wage bill o fthe public sector grew fiom 5 percent in1999 to 11percent in2004 (CFA 6.9 and 16.2 billioninnominalterms, respectively). The Central Government payroll is estimated to have increased from about 17,300 to 19,600 public servants during the same period (the salary increase o f 8-fold granted to the military by Yala in2003 has ledto an overall increase inthe wage bill o f about 2-fold by end-2004). Reducing the wage bill would require netting out possible ghost workers from the payroll, encouraging early retirement and enforcing the mandatory retirement age in the civil service and the military. The 1994 Law, established the mandatory retirement age inthe civil service and the army at 60 years. This represents a relatively long professional career, as the average public servant inGuinea-Bissau, i s approximately 40 years old, and has a live expectancy rate higher than the national average o f45-50 years. Harmonize the pension system in the army. Guinea-Bissau's current pension system is based on the `pay-as-you-go' principle. The system has the advantage o f being simple because no specific pension fund is required. Retirement benefits represent, therefore, a debt on the Government. The current system provides a safeguard mechanism against the misuse o fpre-established retirement funds as it has beenthe case inother countries. The main caveat o f the current system is most likely the fact that it is not filly enforced, mainly inthe army. Moreover, benefits granted to highranked officers are 10 times higher than those granted to rank and file. - 61 - 4.15 The proposedfiscal consolidationreformshouldbe carried out inthe context of a comprehensive PSR program.68As expenditure contraction will primarily target wage expenditures (insectors other than education and health), it i s important to place the fiscal consolidation reform in the context o f a broad PSR program including a civil service reform and a SSR. The most recent civil service reform in Guinea-Bissau dates- back in the late eightiedearly nineties. In the early 2000s, the Government carried out diagnostic studies o f the public sector with the help o f the European Union and The Netherlands (see Box 4.1, above). These studies were intended to serve as ingredients for a reform o f the civil service in Guinea-Bissau. The implementation o f the reform has, however, been delayed due to the prevailing political instability. A civil service reform in Guinea-Bissau would ideally target three categories o f civil servants: `ghost workers'; people still working while in retirement age; and the redundant staff. In the simulations carried out in Section 2, the potential saving through a reduction o f wage spending - within the limits o f the economy's absorption capacity - is estimated at CFA2 billion6' per annum. This amount is equivalent to the salary o f about 6,000 civil servants per year at the rate o f the minimumwage (CFA 28,000). The Ministry o f Labor has estimated that about 4,000 the number o f civil servants (`ghost workers' not included) would need to be discharged inthe context o f the civil service reform. The real estimate will depend on the number o f ghost workers, which can be determined on the basis o f the civil service census carried out in end-2004. 4.16 The PSR program will also need to include structural reforms of the SSR. Overall, there are 5.04 soldiers per 1000 inhabitants in Guinea-Bissau compared to a regional average o f 1.23, and the majority o f the army staff i s from the Balante ethnic group. On average, security spending represented 2.8 percent o f GDP compared to only 1.7 percent inWest Africa. Addressing the structural problems inthe army would require a comprehensive SSR inthe context o f a broad PSR. Inaddition to the short-term actions mentioned in the previous section, the SSR should address the mediudlong-term structural reforms o f the security sector (see Box 4.2): (i) reforming the pension system in- the army and encouraging early retirements (see Table 4.1);70(ii) downsizing the army, which exceeds the average army size inthe sub-region; and (iii) gradually balancing the ethnic composition o f the military, currently dominated by the Balante ethnic group. Several development partners, including the Community of Portuguese Language Countries (CPLP), the United Nation Office in Guinea-Bissau (UNOGBIS), and the Economic Community o f West African States (ECOWAS), have expressed willingness to support a SSR process inGuinea-Bissau. The analysisin Box 4.1i s basedon the findings of the study"ElCments de RCformedu SystbmeSalarialet du Regimedu Personnel" camedout by the Ministryof PublicAdministrationand Labor in2001. 69 Significantlyhighercontraction of the wage bill wouldnotbe technicallyfeasible due to absorptioncapacity constrains. 'OThe number of highrankedofficers is estimatedat around25, mostly from the Balante ethnic group. Hence there are nearlyas muchofficersper thousandsoldiersas there are soldiers per thousandpopulations. - 62 - Box4.2: Objectivesof a SSR in Guinea-Bissau Reducing poverty in the barracks (short term). Currently there are 24 military barracks in Guinea-Bissau. Their locations are mainly based on the Portuguesemilitary strategic points during the war of liberation. The barracks lack properhousing, sanitary facilities, andhealthservices. Educationlevels among military are very low. While many stay despite the conditions for the minimal security it allows them to 'at least receive one meal a day'. Desertion is reportedlyan increasingfeature of the military forces, althoughno official numbers are available. The desertion is not prosecuted or sanctioned, and contributes to the proliferation of arms particularly in Bissau. Rehabilitating military barracks and ensuring adequate provision of food, dormitory and sanitary facilities should represent a critical component of a SSR. In this regard, the Government will need to prepare an action plan for the SSR in the annual actionplanofthe PRSP for 2006. This will facilitatediscussionsaroundthe financingofthe SSR, as manydonors have already expressedwillingness to participateinthe initiative. Reducing the size of the army (medium term). There are uncertaintiesabout the actual size of the armed forces. A recent public sector census did not include the police and military. A census of the armed forces would therefore represent a key element of the SSR. In 2003, Guinea-Bissau counted about 7,000 armed forces personnel, corresponding to 5 soldiers per 1000 inhabitantsand a public expenditure share of nearly 3 percent of GDP (about CFAF6 billion, of which 5 billion are for salaries, and the remainder are for food and other military expenditures). Hence, the size of Guinea-Bissau's army (in terms of the number of soldiers per capitaand public spending share of GDP) is relatively higher than the regional average of 1.2 soldier per 1000 and 1.7 percent of GDP, respectively(see Table 4.1, above). The Community of Portuguese Speaking Countries (CPLP) recommended downsizing the current number to around 3,000 troops. Reducing the size of the army would likely require a voluntary retirement scheme backedwith areformedpension system(which would address issues relatedto the reluctance to retire from the army). It would also require, mainly for discharged soldier still inthe working age, the creationof an environment conducive to private sector-led employment (this aspect is hrther discussedinchapter two). Balancing ethnic composition (long term). The thirdobjectivewould be alongertermchallenge ofbalancingthe ethnic compositiono fthe army without inflating the size. Ex-PresidentYala acceleratedBulunte recruitments and appointmentsto the armed forces during hispresidency, andtherebymadethe armyproblemalso apotentialethnic problem.Attemptsare beingmade to reintegrateofficersconsideredarbitrarily demobilizedin2001, predominantly belongingto PresidentVieira side ofthe 98-99 conflict A significantdifferencefrom other post-conflict armies is its one-sidedcharacter,where creatingabalancebetweenethnic groups andpolitical affiliations without inflating the forces will inevitably causegreatdisgruntlement.Mandatorymilitary service andnondiscriminatoryrecruitment proceduresare possibleways to address the issueof ethnicimbalancesinthe army over time. Table4.1: ComparativeMilitaryDatafor Selected African Countriesin2003 Personnel Expenditure Total Per 1000 Growthrate (%) per capita(US$) % of GDP Chad 30,000 3.14 5.89 2.1 Congo (RDC) 8,000 0.13 15 1.98 1.4 Cameroon 13,000 0.8 79 11.77 1.4 Benin 5,000 0.68 7 12.55 2.7 Burkina Faso 7,000 0.5 1 70 3.88 1.6 Cote d'Ivoire 8,000 0.46 -39 10.01 1.2 Gambia(The) 1,000 0.64 60 0.58 0.3 Guinea 10,000 1.08 -2 6.32 1.7 Guinea-Bissau 7,000 5.04 -15 6.05 2.8 Mali 7,000 0.58 51 4.27 1.3 Niger 5,000 0.44 141 1.91 1.1 Nigeria 76,000 0.55 -19 3.42 0.9 Senegal 10,000 0.92 -7 8.82 1.5 Average of WAEMU (*) 7,000 1.23 30 6.78 1.7 w: Nationmaster.com (*)ExcludingTogo. - 63 - 1. Developmentof the PrivateSector as Prerequisitefor Fiscal Consolidation 4.17 The success of the proposed fiscal consolidation reform will depend on the capacity of the private sector to create new job opportunities as an alternative to public sector employment.In Guinea-Bissau, the bulk o f the workforce in the formal sector is employed by the public sector. In 2002, the Government approved a private sector development strategy to support the privatization and divestiture o f public enterprises; improve the business environment; and rehabilitate basic infrastructure. Progress in the implementation o f the divestiture program, albeit slow, has been encouraging during the past three years. In2002, the parastatal sector o f Guinea-Bissau consisted o f 44 enterprises, employing about 3,400 staff, Except for utilities, these enterprises were small and many had ceased activity. More than half o f these firms have been now divested or liquidated, notably the ex-Banco International da GuinC Bissau (BIGB), the country's sole commercialbank. Completingthe divestiture o fthe remaining public enterprises would contribute to eliminate contingent liabilities on the Government budget and create newjobs. 4.18 The development of the private sector will require improving the business climate, rehabilitatingrural infrastructure,and microfinance.Accelerating structural reforms will be needed for improving the business climate and enhancing job creation in the private sector. Guinea-Bissau i s a member o f the Organization for Harmonization o f Business Law inAfrica (OHADA).~~ In2002 and2003, the ForeignInvestmentAdvisory Services (FIAS) o f the Bank carried out a series o f studies which revealed that weak institutional capacity, and cumbersome tax and other administrative barriers are major- constraints for the development o f the private sector in Guinea-Bissau. In 2004, the Government developed an action plan with the objective o f reducing the tax burden on businesses; simplifying the tax system; and improving the institutional capacity o f the legal system. So far, the implementation o f the action plan i s progressing well. Since 2004, the corporate income tax rate has been unified to a single rate, and reduced from 39 to 30 percent. Moreover, in 2005, the Government adopted a law to reduce and simplify business licensing requirements (alvara). The implementation o f these measures remains, however, constrained by the lack o f adequate technical capacity within the public administration. 4.19 The rehabilitation o f telecommunication, water, energy, road, and port infrastructure i s critically needed for the development o f private businesses. Inthe area o f telecom, the Government, through the Bank-supported private sector program, has successfidly liberalized the telecom sector. Two private companies have been providing cellular phone services (more than 50,000 lines) in the country since end-2004. Rebuilding the main rural and urban road networks, rehabilitating the port and the water. and electricity company will represent the Government's main challenges over the medium-term. As these areas o f reform are mainly financed through external donor assistance, good governance and strong commitment to reforms will be key in attracting the muchneeded financing. " OHADAcoversthefollowingareas:generalcommerciallaw;corporatelaw;lawsconcerningguaranteesandcollaterals;debt recoveryand enforcement law; bankruptcylaw; arbitrationlaw; and accountinglaw. - 64 - 4.20 The development o f microfinance services will provide critical financing means to private businesses. Only one commercial bank is currently operating inGuinea-Bissau. The banking sector depth i s very limited with a relative low level o f monetization. The financial sector i s also characterized by relatively high lending interest rates (4.75 percent), for small enterprises (12-18 percent), compared to relatively lower average market rates in the West African Economic and Monetary Union (WAEMU). Private sector credit represents only 2 percent o f GDP. A small number o f microfinance institutions operate in the country, mainly in the informal sector, without adequate legal and regulatory framework (2 microfinance institutions per 100,000 inhabitants compared to 7 per 100,000 in Senegal).72 A program for developing the microfinance sector for the period 2004-07 was prepared by the United Nation Development Fund (UNDP) and the United Nations Capital Development Fund (UNCDF) in 2003. However the country's unstable political environment has not allowed making progress on this front. Given the importance o f microfinance inthe country's economy, the participation o f other donors in the UNDPRJNCDF program in the form o f parallel financing would provide greater leverage to the initiative. 2. Fiscal Consolidation: A NecessaryStep toward Fiscal Sustainabilityand Growth a. Rationalfor Fiscal Consolidation 4.21 Empirical evidence suggests that reducing nonproductive public spending can spur growth. It is well established that in low income countries with low public sector productivity, highbudget deficits often lead to a highdomestic demand which puts pressure on domestic price levels. This contributes to reduce consumption and investment consolidation -- the reduction o f unproductive public spending (namely wages) -- has opportunities for the private sector through the traditional crowding out effect. Fiscal often resultedinsizeable fiscal su luses, more stable and decreasing debt to GDP ratios, and faster andsustainable growth? Whenthe level o fthe public sector deficit is highand unsustainable, recent empirical studies suggest that expenditure contractions can yield significant expansionary effects.74 4.22 Several factors may contribute to explain the expansionary effect o f a reduction o f wage related expenditure in Guinea-Bissau. First, in recent years the authorities have increasingly turnedto domestic borrowing to service the budget deficit, inthe absence o f external assistance. The resulting crowding-out effect combined with the already fragile situation o f the private sector have contributed to depress growth. Reducing wage spending in the context o f a civil service reform will contribute to reorganize the 72 A subsidiary of the Compagnie Bancaire de I'Afrique Occidentale (CBAO) based in Dakar, has already realized an investment of . CFAl.2 billion CFA for startingactivities inBissau by end-2005 or early 2006. "Baldaccietal(2003) showthatincreasesinGovernmentnon-wageexpendituresinBenin, TheGambia, Senegal(amongothers) were compatible with higher growth. 74 A study by the IMF using pooled information (time series and cross sectional data) on 39 countries (industrial and developing countries) over the period 1990-2001 established that, on average, a reduction of less than 0.5 percentage points of GDP in budget deficits led to a per capita income growth of 0.5 percent per year during the period. Similar conclusions were found for Brazil where the sharp fiscal consolidation policy carried out by the Cardozo Government in 1999 was crucial in restoring fiscal sustainability and growth. - 65 - attribution o f task in the civil service and thus improve public sector productivity. Subsequently, public sector budget deficit and indebtedness levels will improve, and the ensuing crowding-in effect would counteract the usual contractionary effect stemming from fiscal consolidation as posited by the traditional Keynesianmultiplier theory. 4.23 Second, fiscal consolidation is expected to improve governance and public confidence in Government policies. Following the 1998 conflict the Government has accumulated a considerable stock o f domestic arrears vis-&vis the private sector, which has been only partially cleared so far. Moreover, public policies in recent years have led to major budgetary slippages which undermined economic performance and public confidence in Government policies. A strong commitment to reform through a sustained fiscal consolidation policy is likely to restore public confidence in Government's ability to create a favorable environment for growth. The quality o f the fiscal reforms, the speed with which they are adopted, and the conviction that they will be carried out are fundamental in convincing businesses and households that economic conditions have improved in such a way that they can adjust their consumption and investment behaviors accordingly to boost aggregate demandand growth. 4.24 Third, fiscal consolidation is expected to generate stronger economic growth through expenditure composition effects, which could, for example, flow from an increase in the proportion o f productive expenditure and the reduction o f distortionary taxes. It i s well known that private investment in particular appears to react strongly to fiscal measures that increase expected benefits, for example from the reduction o f transaction costs. Increased spending in infrastructure, for example, would contribute to reduce transaction costs and increase productivity and growth inthe private sector. b. Sequencingof Actions 4.25 Downsizingthe public sector.Inorder to enhance public sector productivity and growth it i s urgent to downsize the Government's wage bill (in sectors other than education and health) at sustainable levels, inthe context o f a medium-term civil service reform. Prior to the conflict, the Government had already considered downsizing the public sector. The options discussed included the suppression o f all unskilledpersonnel working on cleaning, maintenance and surveillance. These activities were to be subcontracted to private firms to be selected through competitive bidding. Following the conflict, the absence o f adequate regulation o f recruitments in the army and the civil service contributed to further increased wage spending. Moreover, weak monitoring o f retirements, transfers and deaths within the public service contributed to increase `ghost workers'. The downsizing would therefore need to include active workers as well as `ghost workers' ifthere are any. 4.26 For efficiency and fairness purposes, separation packages may be needed to overcome resistance to public sector downsizing (see Annex 2 for further discu~sion).7~ Ifno compensation wereprovided, manypublic sectorworkers would suffer as aresult of 75 Separationspackageshavebeenusedby governmentsall around the world oftenwith support from external donors. Haltiwanderand Singh(1999) inacross-country study on developingcountries estimatedthe average compensation package at US$2,400. However, the figureswere as high as US$13,000 inneighboringSenegal. - 66 - job separation. Inthis case they are likely to be exposed to low income and poverty. A World Bank study on Guinea-Bissau estimated the "just right" compensation package, using a forward-looking formula to determine the present value o f the expected loss in income and social benefit.76 The results indicate that the average loss in earning for a public servant would range from CFAF672,OOO to CFAF745,OOO (roughly US$1,300).- The compensation package offered to redundant workers i s generally a lump sum payment or a multiple o f the base salary that takes into account seniority. However, the "right" compensation package would also needto take into account education levels and location factors (for example, the compensation for workers with secondary and technical education or living in remote areas may need to be higher than the one for those with primaryeducationor livingoutside the capital city Bissau).77 4.27 Enhancing shared growth and fiscal sustainability. In the case o f Guinea- Bissau, evidence -- based on simulations from a three-variate Vector Auto Regressive (VAR) model7*(see details on the model inAnnex 1) -- suggests that ifreal Government consumption (namely wage spending) were reduced by 2 percent (5 percent in nominal terms corresponding to 1percentage point o f GDP) annually over the period 2006-2008, real GDP would increase by about 1.6 and 2.9 percentage points in 2007 and 2008, respectively, compared to baseline growth targets for the same years (see Table 4.2). Although these results are consistent with empirical findings, they may be overestimated inthe case o f Guinea-Bissau, given the weak institutional capacity of the State and other bindingconstraints to private sector growth. Assuming the aforementioned preconditions are met, the model predicts that if expenditure contraction were not pursued beyond 2008, the expansionary effect would falter and even reverse by 2011. 4.28 Public sector downsizing will, however, not be sufficient for achieving medium- term fiscal sustainability. In order to achieve a current surplus in the medium-term, the Government will need to pursue sound expenditure management and improve the efficiency o f revenue collection by reinforcing and sustaining the ongoing reforms ink e y departments o f the Ministries o f Finance and the Ministry o f Fisheries. Activities will need to include well targeted capacity building programs in customs and fishing licensing, payroll and procurements department^.^^ Table 4.3 provides two series o f simulations to illustrate the fiscal effect o f higher revenue collection efforts.*' In2004, Guinea-Bissau's revenue-to-GDP ratio reached 17 percent (of which only 8 percent were for tax revenue). This ratio i s expected to improve to about 20 percent in 2005 thanks to tax and custom reforms currently being carried out by the Government. If the revenue collection effort during 2006-08 were kept the same as in 2005, the budget will yield a- current primary deficit o f 4.3 percent inaverage during2006-08 (simulation 1). 76 Chong and Rama (2001). 77 Potential earnings are higher in Bissau than outside the city. Likewise, potential losses are higher outside Bissau due to the scarcity ofjob opportunities outside of the capital city. 78 The model uses annual data on real Government consumption, real GDP and terms of trade changes over a two-decade period for- Guinea-Bissau. 79 This does exclude a discretionary increase in tax rates.Any increase in tax rates i s likely to have a contractionary effect as tytulated by the neoclassical economic theory. The simulation assumptions are footnoted to Table 4.3. - 67 - Table4.2: Impactof a ReductionofWage spendingon GrowthinGuinea-Bissau, 2005-08 Years 2005 2006 2007 2008 Shock to real public spending (reduction inreal wages and salaries) 0.0% -2.0% -2.0% -2.0% Shock to terms oftrade (-= depreciation) 0.0% -1.0% -1.0% -1.0% Short-term growth effect /1 0.0% 0.0% 1.6% 2.9% Short-term fiscal effects/2 0.0% -2.0% -1.2% -1.1% Source: Bank Staff Estimates / I Deviation frombaseline real GDP growth targets as defined inIMF'sSMP /2 Deviationfrom baseline real government spending growth as defined inthe SMP Source:Bank Staff Estimates. Table4.3: EfficiencyinTax CollectionandMedium-TermFiscal Sustainability, 2005-08 2005 Average 2006-08 Proj. Simulation 1" Simulation 2 (inbillions ofCFAF) GDP 153.7 166.0 166.0 Budgetary Revenue 29.3 31.6 39.8 Government current primary expenditure 37.5 35.5 35.5 o fwhich: Wage Bill 19.5 17.5 17.5 . Current primarybalance -8.2 -3.9 4.3 (inpercentageof GDP) GDP 100.0 100.0 100.0 Budgetary Revenue 19.1 19.1 24.0 Government current primary expenditure 24.4 21.4 21.4 ofwhich: Wage Bill 12.7 10.5 10.5 Currentprimarybalance -5.3 -2.3 2.6 Source: Bank Staff Estimates. /`lation 1assumes an average nominal GDP growth o f 7 percent (4 percent inreal terms based on the growth patternpredicted in Table 4.1), and areductionofthe wage bill of5 percentpased on the areal decrease of 2 percent as predictedinthe VAR model). '' Similation 2 assumes the same conditions as in simulation 1, and improved efficiency in tax collectionleading to an increaseof tax revenue equivalent to about 5 percentagepoints of GDP. 4.29 However, ifthe collection effort improves as a result o f increased efficiency intax collection, the budget i s expected to generate a current primary surplus o f 4.6 percent on average duringthe same period. The strength and sustainability o f these outcomes would depend on the Government ability to accommodate these fiscal policies with sound monetary and structural reforms aimed at stabilizing the macro economy, and improving the business environment for the promotion anddevelopment o fthe private sector. 4.30 Reducing the size, reforming the pension system, and balancing the ethnic composition of the security sector. In addition to improving living conditions in military barracks in the short-term, the Government would need to reduce the size, reform the pension system, and balance the ethnic composition o f the armed forces over the mediwdlong-term. The proposed SSR should be carried out in the context o f the authorities' broadPSRprogram. 4.3 1 With regard to reducing the size o f the security sector, the authorities would, first, need to carry out a census o f the armed forces. The census should be designed so as to - 68 - allow determining the actual size o f the security sector; providing information on the pension system for the military and ex-combatants; and providing information on the retirement system inthe army. The next task would be to determine the `optimum size' o f the armed forces, based on a recent Government study (carried out in collaboration with the Portuguese Military Cooperation),81 and the PRSP's medium-term public expenditure framework. Preliminary assessment suggests that both highranked officers and rank and file staffs are potential candidates for downsizing.82 As in the case o f the civil service reform, separation packages may be needed to compensate redundant militarypersonnel, andmitigate risks o f instability. Mandatory military services may also represent a way to downsize the active security personnel to the strict minimum. 4.32 With respect to the pension system in the army, there is a need to reform the system so as to provide greater incentive to retire. In the current system, the benefit package for high ranked officers i s 10 times higher than those for rank and file staff. A retired officer earns on average CFAFFl80,OOO (about $360) per month, which includes the regular pension for officers (between CFAF28,OOO and CFAFF30,OOO) and other benefits (subsidies for electricity, water, telephone, gasoline and rent). A retired rank and file staff earns only the regular pension which is approximately half o f the rate applied to an officer (between CFAF14,OOO and CFAF17,OOO). The relative "parsimony" o f the pension system toward the rank and file may explain why people are reluctant to retire from the army (retirement rules in the army -- which are similar to those applied in the civil service - are not fully enforced, because the mandatory retirement age o f 60 years is not being observed). 4.33 With regard to the ethnic issue, the country's army is in majority composed o f people from the Balante ethnic group. Ifthe ethnic composition o f the armed forces were to remain the same, the military would continue to represent a potential candidate for political manipulation as mentioned earlier. In the long-term it would be important to adopt a recruitment system that promotes ethnic balance withinthe armed forces. 4.34 Addressingexternaldebt issues andnormalizingrelationswith creditors.The sustainability o f Guinea-Bissau's external debt remains a major concern. The country qualified for the decision point o f the HIPC Initiative in December 2000, and started receiving interim debt relief from the Bank and other multilateral and bilateral donors (IMF, AfDB, Paris Club, etc.). As mentioned above, fiscal slippages in early 2001 derailed the donor-supported macroeconomic program, and interim debt relief by the Fund and the Paris Club creditors stopped after 2001 (only the Bank and the AfDB has gone in arrears, and additional borrowing -- albeit enerally on concessional terms -- continue to provide HIPC interim debt relief). Subsequently, most external debt service led to a firther increase in already high external debt.8 Inthe medium-term' a complete f write-off o f all external debt as called for by the recent G8 initiative would imply debt service savings for the Government o f about CFAF 25 billion per year, and would substantially reduce the Government's financing requirements. However, there would *'`Livro Banco' da DefesaNacional da Rep6blicada GuinC-Bissau (2002). There are 5 military personnel per 1,000 inhabitants in Guinea-Bissau compared to a regional average of 1. Moreover the MOF's dataindicate that there are Isenior officer for every 5 soldiers (2040 times above standard). 83 The total nominal debt stock was estimated at around US$915million (730 percent ofNPV of debt-to-exports ratio) at end-2003. - 69 - still remain a sizeable financing gap after debt relief. While some o f this gap would presumably be filled by additional external support, some restructuring o f Government expenditures would still be required. Finally, medium-term debt sustainability depends on continued fiscal adjustment efforts by the Government and support from the international community particularly duringthe period 2006-2007. c. FACTORS MAYTHAT CONSTRAINIMPLEMENTATION OFREFORMS 4.35 Politicalinstability.Persistent internalpolitical tensions represent a serious threat. to peace and stability. The political situation remains polarized following the recent change o f the Prime Minister by the President. In this context, it is likely that the 2005 Donor Round as well as the finalization and implementation o f the Government's PRSP will be hrther delayed. 4.36 Weak institutional capacity. As mentioned in the second chapter, the weak institutional and governance capacity o f the State represent a major limitation to the implementation o f the aforementioned reform agenda. Provided that political stability i s maintained, ongoing donor support to the authorities' capacity buildingprogram would contribute to mitigate this risk inthe medium-term. 4.37 Vulnerability of cashew nuts to external price fluctuations. Government's revenue relies heavily on the taxation o f raw cashew export. Consequently, terms of trade losses stemming from the fall o f the international prices o f raw cashew nuts often negatively affect Government revenues. In such cases, the Government often faces difficulties to pay salaries and the debt service. D. CONCLUSIONAND POLICY CONSIDERATIONS 4.38 Achieving a sustainable macroeconomic and fiscal performance continues to represent a major challenge for Guinea-Bissau. This important task is complicated by the continued political instability and inadequate public policies, such as the increase of security sector salaries implemented in 2003. It is imperative that the new administration ensures the continuity o f institutions and commits to the reform program put in place since end-2003. Inthat vein, the authorities will need to adopt a comprehensible short and medium term reform strategy. In the short-term, the Government will need to pursue priority spending programs such as wage and salary payments and the delivery o f social services to civilians and the military. Inthe medium-term, the authorities will need to: (i) accelerate ongoing structural reforms aimed at promoting the development o f the private sector; (ii)carry out a broad fiscal consolidation reform with the objective o f reducing the size of the wage bill, improving the efficiency o f revenue collection and promoting fiscal sustainability; (iii)reforming the security sector; and (iv) normalizing relations with external creditors. Strengthening political stability and institutional capacity and government are key for implementing these reforms. - 70 - 5. MAKINGAGRICULTURE MORE PRODUCTIVEAND SUSTAINABLEFOR POVERTYREDUCTRION Agriculture is the engine of Guinea-Bissau's economy. The sector relies mainly on subsistence production of food crop and the monoculture of cashew nuts. The latter represents the main export earning commodity and the principal source of income in rural areas. Its production represents more than 90 percent of country's exports and employs about 80percent of the rural labor force. The presence of bureaucratic and cumbersome administrative arrangements and weak legal systems often lead to high transaction costsfor cashew buyers and exporters, which contribute to decrease thef a m gate price of the raw nuts. The reduction of these costs through improved investment climate and better organization among actors in the cashew chain would contribute to improve incomes and reduce poverty in rural areas. For the rural sector to create newjobs, policy makers would need to aim at promoting the processing of raw cashew into exportable cashew kernels, and exports of tropical fruits. This is particularly important at this moment as the Government is readying to implement a major PSR. Agricultural diversification would revive the private sector and contribute to create the much needed new jobs to absorb part of the labor force to be ? dischargedfrom thepublic payroll. 5.1 Agricultureg4 has long been the backbone o f Guinea-Bissau's economy. The sector represents more than half o f the GDP, employs more than four-fifths o f the labor force, and contributes to more than 90 percent o f the country's export earnings.g5Overall, two types o f agricultural activities are practiced: subsistence agriculture based on the production o f food crops and cashew nuts fanning. Agricultural production rests essentially on subsistence fanning. Small producers, estimated to be some 90,000 households,g6represent the bulk o f the rural population and generate about 90 percent o f the production for internal consumption (rice is the major crop and staple food), and close to 80 percent o f the export production (cashew). Inaddition to the traditional farmers (in Tabancas), there i s a small number o f "ponteiros" (2,000), that have access to important landconcessions. Over the past three decades, the productiono f cashew nuts has taken a leading role in the country's economy. Guinea-Bissau essentially produces raw cashew- nuts.The sector, therefore, remains highlyundiversified andvulnerable to external price fluctuations. Moreover high transaction costs associated mainly with the poor business environment and weak physical and administrative infrastructure, contribute to limit income generation for smallholders inthe cashew sector. 84 Includescashand food cropping, fishing, livestock, and forestry 85 Agriculture i s practicedby two types of producers.Small farmers comprisedof approximately 90,000 householdswith an average farm size per householdare about 2-3 hectares.Large farmers or ponteiros, with landright concessions assigned by the government, possess about 2,200 properties covering 27 percent of arable land or 9 percent of the national land, of which 1,200 are not under production.An average property is 136 hectares ranging from 20 to 3,000 hectares. Small farmers account for 75-85 percent of the cashewplantations, ranging from 2to 3 hectares inpropertysize. 86FA02004 NouveauPartenariatPour Le Dkveloppementde L`Afrique (NEPAD). ProgrammeDktaillkPourle Dkveloppementde L'Agriculture Africaine (PDDAA) RCpubliqueDeGuinke-BissauTCP/GBS/2907 - 71 - 5.2 The `cashew boom' has, however, had an adverse effect on rice production, which represents a major livelihood mean for the population. Increasing agricultural productivity in order to reduce poverty, will require the implementation o f policies aiming at promoting the production o f rice - which i s the main livelihood mean o f the poor - and the diversification o f the cashew sub-sector. Both rice and cashew productions are subject to high transaction costs which represent a major constraint to increasing productivity and incomes inrural areas. The discussion inthis chapter will, first, provide an analysis o f the main opportunities and constrains in the agricultural sector, and then focus on analyzing transaction costs and their impact on productivity and income generation for smallholders inrice andcashew sectors. A. MAINOPPORTUNITIESANDCONSTRAINTSINAGRICULTURE 5.3 Guinea-Bissauhas a largely untapped potential for agriculture. The country is endowed with fertile soils, abundant water and favorable climate. Agricultural production includes cashew nuts, rice and other cereals, fruits, fishing, livestock and forestry products. Exports include cashew nuts, fish and seafood, fruits, palm kernels, and timber. Cashew andrice remainthe major cash crop and staple food, respectively. 5.4 The fast growing cashew sector remains the main source of income for the majority of the population.Guinea-Bissau is the sixth largest producer o f cashew nuts (6 percent o f the world cashew production) after India, Vietnam, Brazil, Ivory Coast, and Tanzania. As a labor intensive activity, the production o f cashew nuts plays a vital and leading role in Guinea-Bissau's economy. Started as a marginal activity with an export volume o f about 2,500 metric tons in the 1970s, exports o f cashew nuts have increased steadily duringthe past three decades, reaching over 80,000 metric tons by 2004. Cashew plantingwas first established inthe Northern regions o f Ohio and Biombo, and expanded. rapidly in the East and the South. About 5 percent o f the country's land or 175,000 hectares are devoted to cashew production, with average farm sizes o f 1.6 and 14.2 ha for smallholders and large producers (ponteiros), respectively. This share continues to grow at the rate 4 percent per year. 5.5 Brush forest clearing and planting are the primary activities required for establishing a cashew plantation. These activities are generally carried out by unskilled laborers and can take approximately 30 person-days o f labor at a cost o f approximately. CFAF60 000 per hectare (US$110). When the fruits and nuts ripen inApril through June, small farmers collect their own, while larger planters ("ponteiros") hire workers, often women, to do the collection. Moreover, during the collection o f the cashew nuts it is estimated that about CFAF125 (US25 cent) per Kg i s paid as labor cost (approximately 50 percent o f the average farm gate price per Kg). This does not include stolen nuts and whatever additional incentives and food the collectors receive. Under this system, if the collectors gather 35 Kg/day o f nuts, they earn CFAF8,750 every four days, or CFAF2,188/day (about US$4.5), which i s a very attractive rural wage rate in Guinea-- Bissau. 5.6 Guinea-Bissaupossesses a large untapped potentialin rice production.Rice (paddy) represents the primary staple food crop. As in many African counties, rice plays - 72 - an important socioeconomic role in Guinea-Bissau. It is generally produced for consumption and food security, sale on the market, and batter transactions. Rice production has increased by more than 10 percent per year during the 1980s, largely because o f improved economic incentives. However, supply persistently failed to meet demand, hence leading to increased imports o f rice (80,000 tons per year on average representing about 85 percent o f total cereal production). Rice production, traditionally practiced inthe South, stalled following the boom o f cashew inthe 199Os, due mainly to increased reallocation o f agricultural land and labor force to cashew p r o d ~ c t i o n . ~ ~ 5.7 Guinea-Bissau's weather is favorable to the production of other cereals and a large variety of fruits. Other cereals (millet, sorghum and maize) play a major role in food security. Average annual production reached more than 50,000 metric tons per annum inrecent years. Guinea-Bissau's weather is favorable to the production o f a large variety o f h i t s including mango, palm oil and cola nuts. Although the production o f other food and h i t crops i s mainly for subsistence, there is significant potential for industrial processing. 5.8 Fishing remains a strategic income generating activity in the economy. However, the fishing sector in Guinea-Bissau is very underdeveloped. Despite this, fishing serves as an extremely important livelihood and particularly coping strategy for- most coastaVriver villages. The country has large and valuable fish resources. Especially the inshore resources remain largely untapped and traditional fishing by the local population has a strong export potential. The fishery sector represents a big production potential making use o f the country's coastal line extending 274 km and a continental platform o f 53,000 km2. An inventory study in 1998 indicated a total fishery biomass o f 1.3 million tons, which represents an annual potential harvest o f almost 300,000 tons. Traditional fishing catches have in recent years ranged between 20,000-25,000 tons per year. The later is reported to yield a potential o f more than 50,000 tons. The country's annual consumption o f fish i s 25-28 Kgper capita. Current fish production is estimated to be just fewer than 70,000 tons o f which 26,460 tons are derived from subsistence fishing.88The fishery sector represents an important opportunity for employment for the poor. Effective employment in this sector is less than 5,000 jobs, although much o f the population in rural coastal areas is involved with traditional fishing, processing and trading. The sector is reported to have generated a minimum level o f direct employment, as it engages a mere 609 industrial and about 2,000 traditional fishermen. Those involved with commercialization were also recorded modestly in 2002 (103 female and 37 male- intermediaries). According to the Ministry o f Fisheries, revenues collected from (off- shore) fishing licenses from a range o f large, mainly industrialized countries (EU, China, Italy, Japan), currently contributes about half o f Government revenues. Given the heavy reliance on off-shore fishing licenses, issues o f transparency of government fishing revenue flows, as well as mechanisms o f financial and public accountability, are o f great importance inorder to avoid elite capture and further instability associated with the use o f those funds. ''Guinea-Bissauwas a net exporterof locallyproducedrice up to 1961. During 1940-1960averagerice exportsreached5,000 metric tons, and fell below 1,000 metric tons startinginthe early 1960s. ''Most recentdata are from 2003. Providedby ICAF', Ministry of Fishing,in INEC (2005). - 73 - 5.9 The industrial fishing fleet is authorized to fish anywhere in the country's Exclusive Economic Zone (EEZ), at least 12 miles o f f the coast, as artisanal fisheries have exclusive rights within the 12 mile zone. In 2000, 60 percent o f the legal fishing fleet constitutedchartered vessels, 17.5 percent from the EU, and 7.5 percent from China. Since then, the chartered fleet has declined dramatically as license fees have increased four-fold (to CFAF140,000/GRT), from 85 in2000, to 57 in2001, to 4 in2002. There are indications that the number o f licensed vessels have increased recently however to address the country's acute financial problems. Given the almost complete lack o f surveillance and enforcement, it is doubtful that all formerly licensed chartered vessels have left the country's waters. Some 80 percent o f the so-called "local" industrial fleet (apparently many foreign companies have made deals with local companies to fish under the Guinea Bissau flag) and foreign licensed vessels landed their catches in Dakar; a much smaller percentage in Abidjan and Las Palmas. Fish landings o f foreign industrial vessels in Bissau are still rare, and mostly limited to those o f Chinese vessels. Demand for andprices o f fish inGuinea-Bissau are low incomparison to Senegal, inpart because o f a lack o f fish processing capacity and because of price policies that depress prices for some industrially caught species inthe local market. Inaddition, poor sector services, red tape and corruption and the absence o f a standard quality control system that satisfies major importer markets, undermine efforts to bring fishing "on-shore" inGuinea-Bissau. 5.10 There is little tradition or culture o f involvement in marine fisheries as exists in Senegal or Ghana. Artisanal fisheries in Guinea-Bissau are concentrated along the coast, islands, and rivers, and the catch found here constitute roughly 80 percent o f the artisanal catch over two periods o f the year: April to May (also coinciding with the drylhungry season), and from October to December. Currently about 3,500 artisanal fishers are reported to be operating inthe country, o f which at least 50 percent are from Senegal and Guinea-Conakry. The number has been almost halved since the war, when it is thought that many o f the foreign artisanal fishers abandoned Guinea-Bissau. Most o f the artisanal catch i s taken by foreign artisanal fishers and likely transported to neighboring countries. Only about 10 percent or so is reported to be taken by domestic fishers. This small- proportion i s attributed to the fact that fishing in Guinea-Bissau has traditionally been a marginal activity - mainly to complement agricultural activities, or as a coping strategy - practiced some 4-6 days a month, over 8-10 months, for a total o f less than 50 days a year. According to the FA0Fishery Country Profile (2001), in 1996 fishing was the main activity o f approximately 18 percent o f the total numbers o f fishers while agriculture occupied 78 percent. These fishers typically use small, traditional canoes and hand-lines or small gillnets. 5.11 As compared with industrial fishing, however, the bulk o f the domestic sector benefits accruing to the private sector originate from artisanal fisheries, though primarily from local rather than foreign artisanal fishing. The Strategy Note states that the share o f value added o f gross production value i s far higher in artisanal fisheries (75-90 percent) than in industrial fisheries (35-50 percent), and local processing and marketing create additional value added. Nevertheless, the local market for fish in Guinea-Bissau i s not well developed yet and prices are generally low; virtually no export-oriented processing and marketing facilities exist that could offer higher prices, as exist in Senegal. Locsll' demandfor high-value fish is limitedas purchasingpower is low. - 74 - 5.12 Livestock, forestry and environment. Livestock represents about 32 percent o f agricultural GDP and is produced mainly in the Eastern part o f the country.89However, the country i s a net importer o f fresh meat, mainly poultry. Forestry covers 2 million hectares (5 percent o f the country) with diverse ecosystems. The forest i s however gradually being destroyed due to abusive use o f trees for domestic charcoal. The coastal zone o f Guinea Bissau is internationally recognized for the richness o f its biodiversity as well by the number and the variety o f birds. The country's mangroves are the main reproduction site o f species various fish, shrimp and mammals. 5.13 Growth in agriculture is constrained by the lack of investments. As in the other economic sectors, public investments in agriculture have stalled inrecent years due the reallocation o f public resources to defense and security programs. Similarly, private investments suffered from.the lack o f adequate micro financing mechanisms needed for boosting productivity. 5.14 Cashew production is not Figure5.1 Trends inCashewPrices,1979-03 diversified and 1600 therefore yield little 1400 ! value added and 0 g1200 remains vulnerable to price fluctuations. ! 1 , z. 1000 Guinea-Bissau ; 1 " l 800 produces and exports P raw cashew. This situation places the sector in a vulnerable $ 200 condition vis-A-vis 5 0 price fluctuations on the international 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 markets (see Figure 5.1). Moreover, the agriculture sector would generate more value added if cashew nuts were processed and conditioned before being exported. Another main constraint facing the cashew sector is the absence o f research and development, and vulgarization activities. In Guinea-Bissau, cashew trees are grown naturally without using advanced scientific methods, while in other countries research programs are carried out in order to improve the size o f the nuts and their capacity to resist deadly diseases such as the Fungi Anthracnose and Oidium Anacardii, which have already affected plantations in Mozambique. So far, Guinea-Bissau has been fortunate as these infections have not spread inthe country. There is evidence to suggest, however, that Guinea-Bissau may be increasingly affected by such environmental and climactic risks. Duringthe 2005 harvest, the prices for cashew grown in Guinea-Bissau fell sharply due to the discovery o f parasites attacking the country's cashew trees. Ifthese price fluctuations are passed on to the small-producers, they could have substantial poverty inducing effects. 89 The livestock i s composed of 410,000 bovine; 240,000 sheep; 225,000 caprine and 67,000 porcine and 473,000 fowls. - 75 - 5.15 The absence of a coherent rice-cashewstrategy representsa major threat to rice production and food security. The farmers are naturally inclined to engage in commercial crop production o f more guaranteed value. This i s part o f the reason why rapid expansion o f cashew production -- although good for the economy domestic rice production is stagnant in return for increased cashew production^.^^ The -- represents a menace to the production o f rice, the main staple food. Small farmers have increasingly adopted cashew plantation as a cash earning strategy. Consequently, subsistence production o f rice has been replaced by rice purchase enabled by cashew production and its barter for rice.g1The advantage o f this strategy is that it allows farmers to reduce their production cost, especially in terms o f labor inputs for a household (high for rice compared to cashew). The other major disincentive for rice production i s the pricing mechanisms. Farmers have been sensitive to the prices o f rice on domestic market, on which local rice variety is not praised favorably enough to give incentives to engage surplus production beyond what would be necessary for subsistence needs for a family. Locally produced rice sometimes i s hard to sell. The strategy o f replacing subsistence crop with cash crop involves a major food security risk. Farmers need to survive within what rice harvest permits as it completes in September-October in the small valleys, or October-November in mangroves. They have to wait for the cashew nuts to ripen for harvest in MarcWApril through June when barter transaction with rice is possible. Farmers' subsistence rice stock often runs out before such transaction i s possible, continuing to present a food security risk. In this context food insecurity i s a major concern for the majority o fthe population. 5.16 Access to financial means remains limited for smallholders in agriculture. Microfinance i s ill-developed and there is only one commercial bank in Guinea-Bissau and virtually all banking activities are concentrated in the capital city Bissau. Commercial loans are limited to a few small enterprises in the form o f short-term agricultural working capital (crkdit de campagne). Access to credit i s generally limited for the majority o f the population due to lack o f loan collateral. Improving access to microfinance credit for smallholders inthe fast growing cashew sector, for example, will facilitate the diversification o fthe sector and contribute to job creation. 5.17 Lack of appropriate technical assistance for smallholders is a severe constraint to improved agricultural production and diversification. Technical assistance to small poor farmers i s almost inexistent due to institutional constraints and lack o f resources. Expanding the potential o f the smallholder sector would require technical assistance support for the development o ftheir production capacity. 5.18 The lack of rural road infrastructurerepresents a major constraint for the development of agriculture. Much o f Guinea-Bissau's infrastructure was destroyed- duringthe 1998 conflict. The lack o froad infrastructure inrural areas limits the access o f rural production to local and regional markets, and often contributes to increase agricultural transaction costs. Almeida 2005. 9'71 percentof the householdssurveyed in the 2005 QS reportedthat they barteredcashew for rice, while 37 percentstated that they sold cashew inorder to purchase rice. 3 . - 76 - B. TRANSACTIONCOSTSAND POVERTYREDUCTIONINTHE CASHEWNUTSECTOR 5.19 Over the past three decades, cashew nut has had a significant poverty reducing effect in Guinea-Bissau. Figure5.2: Cashew Yield and Poverty, Episodes o f good cashew performance 1992-04 are often associated with higher per capita incomes and better economic performance (see Figure 5.2). However, there are significant transaction costs, which contribute to reduce the farm gate price for producers. These transaction costs generally derive from the absence or the lack o f adequate institutional and regulatory arrangements, and high 1992 1994 1996 1998 2000 2002 2004 domestic and international transportation costs (due to poor rural Povertyrate (%), left axis road infrastructure and the small - - number o f freight ~ompanies).~~ The -0- Cashew yield (Kg/Ha), right axis discussion inthissection will: (i) the main determinants of transaction costs inthe review cashew sector; (ii) assess their impact on poverty reduction; and (iii) the issue of discuss sustaining poverty reduction and growth inagriculture.93 1. Analyzingthe Main DeterminantsofHighTransactionCost inthe Cashew Sector 5.20 The cost of doing business in the cashew sector remains relatively high. As mentioned in the first two chapters, instability and weak governance remain major disincentives to domestic and foreign investments necessary for the development o f the cashew sector. There are numerous risks associated with changing regulations, unclear and cumbersome administrative requirements for existing and new businesses, dysfunctional legal enforcement and inadequate utilities and seaport systems. Addressing these issues would require improving the investment climate (simplifying and clarifying relevant laws and taxes, streamlining investment and export-related administrative procedures, rehabilitating the physical and administrative infrastructure o f the port). Laws concerning cashew nut trading have changed often in recent history, including two changes in 2000 and another in 2001. The laws themselves are unclear, or the traders believe that enforcement may not always correspond to what the laws say. For example, it is currently not clear whether or not foreign enterprises are permitted to buy raw cashew nuts within the country as intermediaries or exporters. Not only does this reduce 92 The country does not have a railway system, and possesses only 10 percent of paved road for a network of 4,400 km. The road network in rural areas is generally unpaved and in bad condition. The country has a large river transportation network yet to be developed. The cost of freight to India for example i s significantly higher in Guinea-Bissauthan from other West African ports. A 20 feet container shipped from Bissau to India was quoted as US$1,400 in June 2004(rising to US$1,700 by late June) compared with US$600fromAbidjan. The higher costs are due to to shipping linecharges for callingat Bissauportandthe absenceofcompetitionin Guinea-Bissau's freight market. 93 Sub-section 1 and 3 are basedon a recentstudy on the cashewsector inGuinea-Bissau(Jaeger and Lynn, 2004). - 77 - the competition for the nuts but the uncertainty is an unambiguous danger signal to investors, and needs to be cleared up. When enforcement is believed to be contrary to the law, there must be recourse through the courts, which requires an effective judicial. system, 5.21 Bureaucratic regulations often lead to higher transaction costs, which translate into lower farm gate price for farmers. The farm gate price o f the nuts was between 60-70 percent o f the FOB value o f the raw cashew nuts in 2004. The price doubled duringthe first weeks o f the season and then fell back as the export buyingprice had moved sharply higher and then dropped again -- due to increased speculation on the side o f the Indian exporters. While the motives for such speculation remain uncertain, hightransport and excessive export costs associated with bureaucratic regulations and a particularly higher export tax on cashew (6 percent) compared to other exports (2 percent) are believed to be the main determinants. In this context, exporters not only reflect incurred transaction costs in the fann gate price during the season (mainly at the end when they have already constituted sufficient stocks), but they also reflect them in the reference price for the upcoming season. Subsequently, as international prices are exogenous, any adverse price fluctuation on the world markets would translate into a lower farm gate price for cashew producers (because exporters would respond to the price decreaseby offering lower prices to farmers). 5.22 The absence of coordination among producers and the lack of supervision on the Government side also contributed to increase transaction costs for cashew producers. Currently, there is no private organization that encourages and sustains collaborative actions between all parties involved inthe cashew chain. Since the primary beneficiaries o f most developments in the cashew sector are private agents (farmers, processors, traders, workers, and marketers), it stands to reason that these private entities should have an interest inpromoting the development o f the sector. Private stakeholders in the cashew sector need to organize themselves under a structure that they create to promote their mutual interests (see Box 5.1).94 The composition and leadership o f this structure should be chosen entirely by its private constituents, as should its agenda. Among other tasks the organization would: (i) formulate a strategic vision for the sector and liaise with the government in pursuit o f this strategy; (ii) coordinate and provide logistical and informational support to various partner organizations involved intraining, credit, research, extension, and other services; (iii)explore the possibility o f deals between producers and buyers/exporters to pre-finance the cashew campaign; (iv) set benchmarks and norms for cashew production to protect the local production against competing producers and processors; (v) investigate opportunities for collaborative marketing through for example trade shows; (vi) collect and disseminate information on current international raw nut and kernel prices and trade data; and (vii) promote a Code o fPractice within the cashew sector. 5.23 There is, at the same time, a need for the Government to set up a small office- dedicated specifically to policies related to cashews. This office should address issues 94 During a recent workshop on the cashew sector, i t was agreed that the Organization of Cashew Stakeholders (Clmara do Caju) would seek to promote collaboration within the cashewchain and support its members through its services. - 78 - such as: (i) up a free zone or cashew park; (ii) setting providing tax and administrative incentives to investors; (iii) creating a consolidated administrative bureau for investors, covering corporate establishment, importation o f equipment and materials, residency for expatriate personnel, and other regulations imposed on new and existing enterprises; (iv) creating a consolidated certification bureau for exports, including phytosanitary certification, certificates o f origin, and other necessary clearances; (v) monitoring and quality control o f cashew kernel exports, including laboratory testing and certification necessary for shipment; (vi) providing key information to potential investors; and (vii) applying existing researchto improve the quality o f the nuts. 5.24 Finally, inadequatetaxation may lead to lower return for farmers.95Exports o f cashew nuts are currently taxed at the rate o f 6 percent (since 1989 this rate has been gradually reduced from 34 percent, contributing to reduing the effective tax rate on cashew by 52 percent). The reduction was intended to boost raw cashew export.' However, the authorities may decide in the future to promote cashew processing by raising rates inorder to discourage raw cashew exports. Although the overall net effect o f such policy may be positive inthe long run, it is likely to have a disproportionate effect on rural incomes inthe short-term (as kernel processingwill take years to fully develop). Ithas been estimated that a 10percent tax rise on raw cashew export, for example, would take about US$5 million away from farm gate earning^.'^ A 10 percent tax increase at FOB level is equivalent to a rise o f at least 14 percent at farmer level. The international sales price will not change; rather the buying price from the farmer will be reduced to' maintain margins in the chain. In the absence o f a processing capacity, a tax increase would penalize farmers and contribute to worsen poverty. 2. Assessingthe PovertyReducingImpact ofLower TransactionCosts in the Cashew Sector 5.25 Cashew nut productionrepresents an importantactivity for the poor. Based on data o f the 2005 QS presented in Table 5.1 below, slightly more than a third o f the- households (37.4 percent) have positive sales, with a higher proportion in the bottom tercile (46.5 percent) than inthe top tercile (26.1 percent). The proportion o f households with positive cashew sales reaches close to half among those household who declare having land, with smaller differences bytercile. While poorer households are more likely to produce and sell cashew, the total value o f the sales i s higher among wealthier households when the sample is restricted to those who sell cashew. However, the differences are not very large in the sample, ranging from an average sale value o f about CFAF121,OOO in the bottom tercile versus 176,000 in the top tercile. This lack o f differences may be due to the small scale o f the survey, in which large producers (ponteiros) are not likely to be well represented. Said differently, the sample is likely to represent the situation of relatively small producers only, rather than the situation o f all producers in the country. Another important result i s the fact that barter sales (exchange o f cashew for rice) are most common, especially among the poorest tercile, where they represent 55.9 percent o f all transactions at the end o f the season (and 73 percent o f all 95 Exportsof cashew nuts are taxed at the rate of 6% (since 1989 this rate hasbeengradually reducedfrom 34%). This measure contributedto reducethe effectivetax rateoncashewby 52 percent. 96 If 80,000 tons are exportedat US$650 per ton, I O percent tax rise equates to US$5 million - 79 - transactions year-through). Inthe top quintile, barter accounts for 39.3 percent o f sales at the end o f the season (59.4 percent year-through). This i s probably because wealthier households have other means to purchase rice, and prefer to sell their production in cash rather than inkind. Table 5.1: Cashew Sales by Tercile in 2005 Tercile Area 1 2 3 Urban Rural Total Positive sale (%) 46.5 39.4 26.1 28.9 42.8 37.4 Positive sale among those with land (%) 50.4 47.0 43.6 50.6 46.4 47.6 Sales value when positive (CFAF) 120,924 147,540 176,189 170,292 131,332 143,020 Time of sale Beginning of season 1.3% 4.3% 3.1% 2.5% 3.1% 2.9% Mid-point of season 3.1% 2.6% 1.5% 2.2% 2.6% 2.5% Endofseason 22.7% 23.9% 36.0% 29.3% 25.6% 26.9% Time ofbarter Beginning of season 5.3% 10.6% 12.2% 11.8% 7.7% 9.2% Mid-point o f season 11.8% 7.1% 7.9% 7.1% 10.0% 9.0% Endof season 55.9% 51.5% 39.3% 47.1% 5 1.O% 49.6% Source:Staff Estimationfrom2005 QS. 5.26 Lower cashew transaction costs are likely to increase farm gate prices and alleviate poverty. Empirical evidence worldwide suggests that improved access to markets through improved business environment, better institutional, regulatory and tax arrangements, and adequate rural infrastructure may have a strong potential for reducing poverty. Inthe case o f Guinea-Bissau, a combination o f data from the 2002 ILAP survey and the 2005 QS is used to perform simulations regardingthe impact of cashew policies on poverty and inequality under a certain number o f assumptions. The first simulation assesses the expected impact on poverty o f an increase in the prices paid to producers thanks, for example, to a higher price obtained by exporters or through a reduction in transaction and transport costs. The second simulation estimates the expected effect on the poor o f a reduction or an increase in the tax to be paid on cashew exports (a full account of the simulation methodology i s provided inthe sixth chapter o f Volume 2). 5.27 Impact of changes in thefarm-gate prices of cashew. InGuinea-Bissau, although farmers may receive a relatively large share o f the export price, the latter itself i s low due in part to the unavailability of financing in the country. As exporters must rely on. financing provided by Indian firms, on strict terms, farmers ultimately suffer from low farm gate prices. A 15 percent increase infarm-gate prices for cashew nuts could result in an increase in consumption for the extreme poor o f 9.5 percent, and 3.3 percent for the poor. The results for the extreme poor are likely to be overestimated because the estimated share o f total per capita consumption accounted for by cashew nuts is large. On the other hand, the very poor who are not cashew producers themselves, but work on farms as day laborers, could benefit from trickle down effects which are not accounted for here. Moreover, taking into account the measures o f poverty and extreme poverty obtained in the 2002 ILAP survey, and estimates o f the elasticity o f poverty reduction to - 80 - an increase in consumption (which are preliminary at this stage), the results indicate that among cashew producers, extreme poverty could be reduced by 3.14 percentage points and poverty by 1.81 percentage points under the umbrella o f a 15 percent increase in cashew prices. These are substantial impacts that result from the important role that cashew revenues play among those households who produce and sell cashew. Finally, in order to assess the potential poverty impact on poverty in the country as a whole, one must take into account the fact that not all the poor or extreme poor are cashew producers. Even though only about half o f the households are likely to be involved in cashew production and sales according to the 2005 survey, the net impact on national poverty remains fairly large, with anticipated reductions in the share o f the poor or extreme poor o f 0.78 and 1.46 percentage points respectively. However, these estimates do not take into account potential derived impacts through wage increases for cashew farmworkers. 5.28 Poverty impact of taxing cashew exports. An increase in the export tax on unprocessed cashew nuts o f about 10 percent could potentially (with full pass through to farmers) generate a reduction intheir farm-gate price o f close to 15 percent (this assumes that farmers get 70 percent o f the export price). Inother words, this would have the same but reverse effect on poverty as the estimates inTable 5.2 (poverty could increase by the amount estimated inTable 5.2). Alternatively, ifthe 6 percent export tax were eliminated, and ifwe were again to assume full pass through to farmers, farmers could benefit from an increase in consumption o f 8.6 percent, which would have poverty impacts o f about halfthe estimates presented inTable 5.2. 5.29 There are noticeable second round poverty reduction effects of cashew on other non agricultural activities. Econometric estimates using the 2002 ILAP datag7 indicates that 1 percentage point increase in households' agricultural income would lead to about 0.4 percentage point increase in their non-agricultural income (see Table 5.3). The labor market i s the main transmission channel o f these spillover effects: cashew farming i s a labor intensive activity which employs mostly unskilled laborers. Although these labor activities take place only duringthe cashew season (April through June), they represent an important source o f income which in turn serves to jumpstart small scale` trading activities in numerous non-agricultural informal activities. Perhaps that is the reason why some argue that "cashew nut i s to Guinea-Bissau what petroleum is to Saudi Arabia." 97 OLS regression of the logarithm of households' agricultural income on the logarithm of their non agricultural income and geographical location. i " - 81 - Table 5.2: Impactof changein cashew priceson poverty,Guinea-Bissau Assumptions Impact Impact on poverty on extreme poverty Value of household cashew production (CFAF) 120,924 134,232 Household size (number of equivalent adults) 7.6 6.6 Per capita value o f cashew production (CFAF) 15,911 20,338 Meanconsumptiodequivalent adult among the poor (CFAF) 25152 91895 Gain inconsumption with 15%rise incashew price (CFAF) 2387 3051 Headcount index ofpoverty/extreme poverty (%) 21.6 65.7 Elasticity ofpoverty reductionto consumption growth -1.53 -0.83 Change inconsumption with 15%rise incashew price ("A) 9.5% 3.3% Change inpoverty among cashew producers (YO) -14.5% -2.8% Percentage point change inpoverty among cashew producers -3.14 -1.81 Share of households producing cashew nuts (%) 46.5% 43.0% Impact on poverty/extreme poverty among all households -1.46 -0.78 Source: Staff Estimatesfrom 2002 ILAF' and 2005 surveys. Table 5.3: StochasticRelationshipBetweenHouseholds'Non-agriculturaland AgriculturalIncomes Dependant variable: Log Per capita non-agricultural Coefficients income Explanatory variables: Log Per capita agricultural income 0.40 (4.91) Rural dummy -0.90 (-3.06) Constant 6.90 (7.99) Source: StaffEstimatesbasedon the 2002 householdsurveydata. Figuresinparenthesesare the t-statistics at 95 percentconfidence. - 82 - Box5.1: Improvingthe Business Environmentfor the Developmentof the Cashew Chain Prospectiveinvestorsneedto know the costs of establishingandoperatingabusiness (operating licenses, fees of various types, taxes on personal and corporate income, tariffs on goods and services, etc.) in order to make the decision to invest. The government, through the Department for the Promotion of Private Investment (Departamento pela PromoCBodo Investimento Privado, DPIP), should collect and publish all regulations, taxes, and fees relevant to foreign investment in general, and the cashew sector in particular. The information should preferably be made available in the form of a booklet published in Portuguese, Frenchand English. Certain fees needto be simplified: for example, the transport of cashew nuts from the interior requires a permit valid for one month. The time limit adds to the unit cost of transport for every day that the lory is not carryinggoods, possibly through mechanical breakdown, but it also stops smaller operators who might not transport cashew regularly. The permit adds to the administrativecost in requiring renewal during the season. This type of indirect tax is ultimately paid by the farmer through a lowered farm gate price. The government should consider tax incentives for new cashew enterprises. This last task might best be performed by a special government commission on cashew affairs, in collaborationwith DPIP and the Organization of Cashew Stakeholders(CBmarado Caju). While simplifylng taxes and fees relating to industrial investment, the Government should simultaneously consolidate administrative requirements for corporate establishment, importation of equipment and materials, residency for expatriate personnel, and other regulations imposed on new and existing enterprises. Rather than having to submit paperwork to the MOF, Ministry of Economy, the Ministry of Labor, the Ministry of Commerce, the Ministry of Foreign Affairs, and other government offices, there should be one office where indusmal companies can accomplish the majority of their required administrative procedures at a single address. Such simplicity would be a strong incentive to investment and a sign that the Government is serious about creating favorable conditions for investors. When exporting food products such as cashew kernels, enterprises are required to have phytosanitary certificates, certificates of origin, and quality control certification. Certain importing counties may require others. There should be one office empowered to issue all of these, at a reasonable fee. The Republic of Guinea, for example, already has such an ofice in Conakry, entitled the Support Center for Export. Formalities. It is in the country's own interest to facilitate exports and minimize obstacles, in order to generate external revenue. As the Government is already aware, there is an urgent need to attract internationalbanks to Guinea-Bissau to furnish services such as secure depositories for business income, sources of cash for day-to-day operations, international transfers, currency conversion services, guarantees of liquidity to cover commitments, and trade finance. Aside from these practical considerations, the absence of internationally-recognized banks in the country is an unmistakable sign of instability and of additional overhead costs to potential investors. The Government needs to continue pursuingthe location of new banks in the country. The current arrangement at the port, both physically and administratively are not satisfactory. The port represents an expensive bottleneck in the swift flow of the cashew nuts. Various intentions have been discussed for the port but a radical upgrade is now overdue. A USAID - TIPS report in 1997 highlighted six problem areas: (i) navigation difficulties (access to the port, dredging and maps); (ii) operational inefficiencies; (iii)lack of port equipment; (iv) insufficient port infrastructure (depth, mooring equipment, transit warehouse etc.); (v) cargo losses; and (vi) high direct and indirect freight costs. These problems should be addressedas a matter of some urgency. It is not clear how muchprogresshas been made. Since the TIPS reportthe port has come under complete government control with GUIPORT (49% Portugueseowned) who managedthe port, replaced in 1999 by a government agency APGB. A task force is required to thoroughly appraise the port with a view to developing this facility not only for the benefit of cashew exports but also for a diversified portfolio of trade. This task force should includerepresentativesof exporters as well. As a means of insuring the safety of investments and the respect for contracts and an impartial enforcement of laws, the judicial system is another key element of the enabling environment for attractinginvestment. Unfortunately thejudicial system in Guinea-Bissau is widely considered to be nonfunctional and subject to conuption. One foreign business operator said bluntly that he would sooner "kiss his money goodbye" than waste his time and more money trying to settle a dispute through the courts. This is the clearestpossibleindication that a reassuringlegal environment for investment does not currently exist in' Guinea-Bissau. Reformof the judicial system is a complex and involved process; reform programs have been funded in the past by donors, but evidentlythe desired effect has yet to be achieved. Special emphasis shouldbe paid to the enforcement of civil law as it relatesto contracts, torts, andpropertylaw. Employers should also beprotected from the opportunistictendency of employees to lodge baseless complaints and damage claims against them, when leaving ajob for whatever reason. Labor laws adapted to the cashew processing industry will be a key element looked for by investors. The payment structure for cashew processing workers needs to be based on productivity, rather than on attendance. The Labor Law (Lei de Trabalho) should thereforebe amendedas necessaryto allow for employment paidon the basis of productivity. Thus the law needs to contain the flexibility necessary for cashew processing employers to hire, reassign, or dismiss employees inways that they deem necessary for the efficiency of the factories. Application to the cashew processingindustry of traditional labor laws for fixed-wage workers and permanent employees would cause the factories to close due to non- profitability.However, workers must beprotected from exploitation:piecerates should be fixed at levels that allow those with average efficiency to earn wages comparable to jobs of a similar skill or educationallevel that are paid at an hourly, daily, or monthly rate. Ifworkers are assigned to tasks that are inherently less productive, such as shelling smaller nuts, the piece rate must be raised in compensation. If labor market forces are not sufficient to prevent exploitative practices, then the Organizationof Cashew Producers (Cdmarado Cuju )should providea forum for negotiation. Source:Jeager and Lynn(2004). - 83 - c. SUSTAININGPOVERTYREDUCTIONAND GROWTH AGRICULTURE IN 5.30 The monoculture of raw cashew poses a serious threat to long-term agriculturaldevelopment. Guinea-Bissau produces mainly raw cashew, which provide' less value added and remains highly vulnerable to exogenous climate and price hazards. Over the past three decades, the rapid growth o f the cashew sector has contributed to suppress rice production for which the country was a net exporter prior to the introduction o f cashew inthe early seventies. Such expansion is occurring spontaneously due to higher returns to cashew farming relative to rice. Although rice is the main staple food in the country, high production costs contributed to promote the production o f cashew nuts.As a result, farmers produced cashew in order to sell it or to exchange it for rice.98The barter between cashew and rice i s an increased phenomenon as rice production- has been stagnant or sometimes abandoned unable to satisfy domestic consumption needs. Such a trend has a significant implication in relation to food security, in case cashew production is adversely affected by market andnatural forces. Cashew production is an easy process. Virtually no labor is required until nut harvesting after planting. This is also providing incentives to grow cashew as a cash earning strategy instead o f growing rice. This means new areas are increasingly converted into cashew plantations, especially in the eastern and southern part o f the country. Most o f such newly established plantations have yet to mature for hit-bearing, so the production peak is expected t o occur sometime infbture years. 5.3 1 Diversifyingagriculturalproduction can spur growth and address the issue of food security. In the case o f Guinea-Bissau, agricultural diversification can be achieved through moving towards more value added in cashew nuts, and taping the country's potential in the production o f wide ranging tropical fruits. The processing o f cashew will contribute to increase agricultural value added and create more jobs. Inview o f the failure o f larger processing units in both Guinea-Bissau and other countries, the focus should be on promoting small labor intensive units as experienced inthe mid 1990s under the auspices o f the United States Agency for International Development's roasting, drying, shelling, and packaging cashews for export -- can quadruple producer's (US AID). Trade and Investment Promotion Support (TIPS) project (local processing -- earnings). Guinea-Bissau could potentially have a sizeable small-scale processing industry that would create thousands o fjobs and earn a great deal o f value added that is currently lost by not processing raw cashew. However, as mentioned earlier, the development o f the cashew processing industry depends on the ability to attract investment, o f which most will have to come from outside the country. In addition to improving the general investment climate, described above, other factors that can contribute in attracting prospective investors include: (i) the availability o f financing means through loans made available to investors on favorable terms for use in settingup cashew processing factories (the terms could include subsidized interest rates, deferred repayment, and reducedrequirements for loan collateral); (ii) increasing kernel marketing '* Terms of trade for bartering cashew for rice may deteriorateas morecashewnuts are neededto securenecessaryfood supply. CashewNut is vital as a sourceof cash income, and indirectly as food, for the country'speasantfarmers. They sell the raw nuts to traders for up to 400 CFA francs (80 US cents) per kg, but often they simply bartera 50 kgbag of cashewnuts directly for a 50 kg of rice. The cashew-rice barter system was introduced in the country in the eighties as a mechanism for enhancing food security in the country. The systemhas insteadcontributedto substituterice imports to domestic production. - 84 - byparticipating ininternational food and nut trade fairs to exhibit the country's products; and (iv) the establishment o f a uniform quality control system for exported kernels. Finally, given the country's tropical climate, export o f mango and other fruits seems to offer opportunities that could be easier to cash in. Box 5.2: TIPS Initiative The TIPS initiative contributed to increasing the level o f broad-based, market-oriented economic growth by assisting Guineans to remove barriers to that growth and stimulate private-sector trade and investment. TIPS has assisted the government and the private sector in identifying and implementing needed changes in national laws and policies which have restricted economic growth, helping them to work together better toward a more responsive systemo f govemment. The project has also provided support to a nascent judicial system, helping to establish national small claims courts and strengthen the independence of the upper leveljudiciary fiom political influence, providing a framework for the rule o f law to replace a legacy o farbitrary legal decisions. `Procaju' -- an association o f cashew processors who graduated from the Center and are seeking to expand their markets -- is the result o f work by TIPS with the private sector. TIPS has always stressed the need to assist organizations and associations to achieve their targets, avoiding top-down, paternalistic "solutions" that collapse once the aid is gone. Usingthis philosophy, TIPS helped ANAG, National Association o fAgricultural Producers (representing primarily small farmers), and the National Association o f Business Women (MAE, representing over 10,000 women), to establish the^ Quinhamel Training Center in 1994. The Center has introduced cottage-industry cashew processing to Guinea-Bissau, having trained more than 400 people in processing and business skills. I t has also spawned the inauguration o f five more training centers elsewhere inthe country, usinggraduates of the Quinhamel Center to train the staff and teachers for these new operations. m:SteeleCommunications Fttp://www.steele.com/cashau/tips.html) D. CONCLUSIONAND POLICY CONSIDERATIONS 5.32 Despite Guinea-Bissau's large potential in agriculture, there are high transaction costs stemming from administrative barriers, weak infrastructure and lack o f diversification. For the rural sector to create labor intensive jobs, policy makers would need to adopt a coherent agrarian development strategy inthe context o f the PRSP, which would aim at promoting: (i)the processing o f raw cashew into exportable cashew kernels; and (ii) the export o f tropical fruits. This i s particularly important at this moment as the Government is readying to implement major PSR. These reforms will contribute t o reviving the private sector by creating much needed new jobs to absorb part o f the labor force to be discharged fiom the public payroll. - 85 - 6. MAKINGBASICEDUCATIONAND HEALTHCARE MOREAFFORDABLE FORTHE POOR The adoption of the Dakar Framework for Action, EFA by Guinea-Bissau in 2000 contributed to improving enrollment rates in basic education. Analysis of survival rates Ji-omschool before completing theprimary education if appropriate actions are not taken (SR) in the primay, however, suggests that the majority of pupils are likely to drop out to keep them in the schooling system. These actions could include: (5, the provision of monetary incentives to parents: (io, the construction of schools offering a six-year primary education cycle within walking distance of dwelling areas; and (iii) actions aimed at improving education quality. Although Guinea-Bissau has been implementing the B I since the early 1990s,patients have been paying high costfor healthcare. The introduction of a UF system in the early 2000s contributed to improve drug availability and outgoing visit services in health facilities. UF have also contributed to improve child immunization, which in turn significantly reduced infant mortality rates. At this time of diflcultfiscal situation for the Government, the sustainability of the EFA and UF initiatives highly depends on the continued support of the international community. 6.1 The massive destruction o f infrastructure and population displacements caused by the 1998 conflict has considerably weakened Guinea-Bissau's education and health by providing affordable basic education and health service to the poor -- has been the systems. Bringing social service delivery to the level attained before the civil conflict -- Government's main challenge since 1999. Although this goal is yet to be fully achieved, the adoption o f the EFA and the UF initiatives by Guinea-Bissau in the early 2000s has contributed to substantially improve primary school and the provision o f drugs and consultation services in health centers. The objective o f this chapter i s to analyze the effect o fthese two important policy actions on social service delivery inGuinea-Bissau. A. EFAANDEDUCATION SERVICE 6.2 The rising concern with the quality o f education, especially in Sub-Saharan African countries was reflected in the protocols o f the World Conference on EFA in Jomptien (Thailand) in 1990. These concerns were again reiterated at the World Education Forum in Dakar (April, 2000), where the international community observed that ten years after Jomptien, not much progress had been made, especially inthe quality o f education inAfrica. The analysis o f the educational system in Guinea-Bissau provides a great deal o f perspective on some o f the fundamental factors affecting the quality o f education in Africa. In view o f achieving the Millennium Development Goals (MDGs) for education, Guinea-Bissau adopted the Dakar Framework for Action in 2000 and presented to the international community in early 2003, its EFA National Plan o f Action. This section seeks to analyze the effects o f the EFA initiative on education service delivery inthe public sector. The analysis focuses on the following points: (i) history o f EFA; (ii) implementation o f EFA; (iii) o f EFA on service delivery and utilization; impact and (iv) conclusion and recommendations. - 86 - 1. Situationof the EducationSector 6.3 Guinea-Bissau is characterized by low adult literacy rates with striking differences based on gender, the area of Figure 6.1: Literacy Status of the Heads of residency and other socio-economic Households in 2002 considerations.There are large disparities between the literacy status of residents o f loo 80 1 Bissau (urban) and residents o f the rest o f 60 the country (rural) as well as betweenmale 40 and female heads o f households. About 80 20 percent o f female household heads are 0 illiterate. In the region o f Bissau, for example, 1out o f every 5 householdheads has no education at all, and only two heads Not Literate Literate out o f five have an education level beyond the completion o f primary school. Inthe rest o f the country, 70 percent o f household heads have no education and only about 1 out o f 15 has gone beyond primary schooling (see Figure 6.1, across). It is also clear from the data that the proportion o f household heads with no level o f education increases as the welfare status o f the household decreases. In the poorest quintile, for example, about 70 percent o f households have no level compared to 47 percent inthe richest quintile (Box 6.1 below provides information about the structure o f the education system inGuinea-Bissau). 6.4 Enrollmentin primaryeducation i s influencedby factors such as location, gender, and economic status. Current Figure 6.2: Access to Primary educational efforts are best captured by the Education byRegion responses given with regard to accessg9to 100 educational services and enrollment rates. 80 About 80 percent o f households in Guinea-Bissau are located 30 minutes or less from a primary school, with 96 percent for Bissau and 79 percent on average for the rest o f the country (see Figure 6.2 across). Improved access to primary education may help explain enrollment patterns in Bissau compared to Region other regions. Primary schools are accessible to more households in Bissau than in other regions. As a result, in 2000 the gross primary enrollment rate inBissau was estimated at 102 percent compared to the national average o f 84 percent."' Another important factor which seems to have had a positive influence on enrollments i s the level o f satisfactionwith the quality o f education. 99Access toprimary school is defined for households with a primary school less than 30 minutes away. Iw Education data collected by the Ministryof Education on the 200-01 school year. , - - 87 - There i s clearly a relationship between satisfaction, usage and enrollment rates as shown in Figure 6.4 below: enrollment tends to be higher in regions where people are more satisfiedwith the education system(Bissau andBafata). Box 6.1: Structureof the EducationSystemin Guinea-Bissau Education Chart Flow c I EducationalSystemof Guinea-Bissau I + Formal Education - Secondary Secondary Tertiary Education: Education: Education - General Professional and Technical Secondary: 1st Cycle Vocational and Technical 2nd Cycle Koranic and Community b Schools Structure of the Education System Formal education: The starting point for this track is an optional pre-school education for children between the ages o f 3 to 6 years old. Pre-school is typically organized by the private sector and local communities with the Ministry o f Education providing support, training and monitoring, especially in the area of curriculum development and teacher qualification. Pre-school i s followed by basic education, which takes 6 years to complete. In Guinea-Bissau, the official age for admission into the first year o f primary school i s 7 years. The first four years o f basic education, called "Enseignement de Base Elkmentaire (EBE)" is compulsory and free (since 2002). Subsequently, children then enter a complementary program - "Enseignment de Base Complkmentaire (EBC)" -which takes two years to complete. ...I.. * - 88 - Box 6.1 continued Community schools and koranic schools (Madrassas) are considered as part o f basic education. The theoretical age group for children in the primary cycle is seven to twelve years old; but the actual age group o f students in this cycle is believed to be 6 to about 18 years old. After six years o f primary education, children are admitted to secondary schools which consist o f two main cycles. The first cycle provides general education (Enseignement Secondaire General - ESG) for 3 years, after which students are admitted to the second cycle (Enseignement Secondaire ComplCmentaire -ESC) where they study for ' two additional years. Theoretically, students are expected to enter secondary school at the age o f thirteen and complete it by the age o f seventeen; but most o f the students inthis cycle are between the ages o f 12 to 24, according to officials o f the Ministryo f Education. Students who choose not to go to traditional secondary schools can attend technical and professional training schools, which are designed to provide technical education intrades like automobile repair, buildingconstruction, carpentry, textile and clothing manufacturing, farming and animal husbandry. With the high drop out rate in traditional secondary schools, these institutions are very popular with the youth, a significant majority o f whom see the training programs offered by these schools as an opportunity to learn a skill that would enable them to make a fast entry into the job market or establish their own businesses. Inresponse to the highdemand for technical. schools, the Ministryo f Education is negotiating with the African Development Bank to establish three o f these schools across the country - Cacheu (Bula), Oio (Farim) and Tombali (Bedanda). The creation o f these schools and the skills-set that they are expected to offer, is likely to create employment opportunities, especially for the youth, a great majority o f whom are currently out o f school and unemployed. Finally, the capstone for the formal system is tertiary education, which provides university education and includes other institutes o f higher learning such as teacher training colleges, nursing colleges, andphysical training schools, among others. Non-Formal Education: This system is designed mainly to provide literacy programs, principally in local languages, to those who never attended school. As is shown in this report, there i s a significantly ' large segment o f the population in Guinea-Bissau, which either never attended school or dropped out o f school. The educational system in Guinea-Bissau, which has been in existence since the country obtained independence from Portugal, is considered to have maintained salient features o f the colonial system o f education. Several attempts were therefore, made inthe past to reform the system One o f such reforms undertaken in 1989/90, called for a unified system o f six classes to be completed inthree phases, at the Basic Education Level. Each o f these phases will consist o f two classes. Promotion from one class to the other will be automatic but movement between phases is based upon a teacher's assessment o f student achievements. This measure was adopted in order to reduce the repetition rate within a phase which i s proven to have no pedagogic benefits, but on the contrary, increases the risk o f dropping out. Implementation o f this reform has been very slow. The curriculum content o f the new unified system is not yet finalized. Many schools are still incomplete (i.e.: do not offer a six-grade primary education cycle). Consequently, even though the new system is theoretically considered to be the current system, in reality, the actual current systemis a hybrido f the old and the new systemdepending on where the school i s located. The failure to have a well-defined, successfully implemented and a nationally uniform system i s likely to affect the performance o f the educational system. - 89 - 6.5 Gender differences in enrollment rates for primary school are also quite noticeable (see Table 6.1 below). Enrollment for boys inprimary school - estimated at 66 percent -- i s on average, about nine percentage points higher than that o f girls."' In Bissau, about 2 percent o f children enrolled inprimary school dropped out and about 44- percent never attended. This implies that inthe year o f the survey, more than 46 percent o f the children in that age cohort were not enrolled (never attended plus dropout rates). The main reasons reported in the survey for the drop out are issues related to work and marriage. At the national level, about 32 and 29 percent o f children are not attending school for reasons that might be associated with child labor and early marriage (see Figure 6.3 and Box 6.2)). Figure 63: MainReasonsfor not Attending School in2002 Figure6.4: Access, Usageand 50 1 SatisfactionwithEducation --b5i100 S 80 I 60 40 a 20 0 National Female Male Access Enrollment Satisfaction E!Work Maniage W Bissau W Bafata 0 Oio Table 6.1: EducationalStatus of PrimarySchoolStudents by gender andeconomic status in 2002 (in percentage) Students aged 7-14 National Female Male Poorest 2 3 4 Wealthiest Enrolled 61.81 57.03 66.13 53.05 56.34 62.38 66.51 73.22 Dropped Out 1.55 1.89 1.24 1.44 1.8 1.89 1.48 1.07 Never Attended 36.64 41.08 32.64 45.52 41.86 35.73 32.01 25.7 Source: Staff Estimates based on the Guinea-Bissau Light Household Survey (ILAP) Data, 2002. Table 6.2: EducationalStatusof PrimarySchool Studentsby Regionin 2002 (in percentage) Biombo/ Quinard National Bissau Bafata Gabu Cacheu Oio Bolama Tombali Enrolled 61.81 86.12 49.73 49.08 71.87 34.82 60.26 60.49 DroppedOut 1.55 1.79 1.82 2.40 1.81 0.47 0.96 1.23 Never Attended 36.64 12.09 48.44 48.52 26.32 64.70 38.78 38.28 Source: Staff Estimates based on the Guinea-Bissau Light Household Survey (ILAP) Data, 2002. lo' Educationdata collectedby the Ministryof Educationon the 2003-04 school year estimatedthe gender parityinprimaryeducation at 1.21 (ratio of boys enrolled inprimaryeducationcompareto girls). This figure is muchhigherthan the datareportedinthe Guinea- BissauLight HouseholdSurvey in2002. - 90 - Box 6.2: Main FactorsInfluencingDropoutRatesinPrimarySchools The two main factors that influence the dropout rate inprimary schools are work (home orjob) and marriage. Both o f these factors are gender-based, and in a very subtle way, seem to be motivated by financial considerations. Work (home job). A significantly higherproportiono fboys drop out of school either to helpout indomestic chores or to help the family in income-generating activities. In poor countries such as Guinea-Bissau, most often, households requirethe participation o f all members o fthe nuclear, and sometimes the extended, family for the economic sustenance o f the household. Under these circumstances, the decision makers in a household may perceive that schooling for their children, instead o f their economic contribution to the household, represents too high an opportunity cost. Householdheads depend on their wealth and borrowing capacity to support their children's education. In addition, the opportunity cost i s further elevated when the children have to cover long distances to attend poorly equipped schools, most o f which do not adequately prepare them for thejob market, even ifthe opportunities for work existed. Legislation banning child labor i s desirable, but it has no impact on the large number o f children who work with or for their parents. Early Marriage. A higher percentage of women drop out o f primary school because o f early marriage. The practice o f girls marrying at a young age i s quite common in Guinea-Bissau as in other African countries, according to studies conducted by UNICEF. Parents choose to marry off their daughters early for a number o f reasons. Considering the high level o f poverty in Guinea-Bissau, poor families may regard a young girl as an economic burden and her marriage as a survival strategy for her family. They may also think that early marriage offers protection for their daughter from the dangers o f sexual assault, or more generally offers the care o f a male guardian. Early marriage may also be seen as a strategy to avoid pregnancy outside o f marriage, which often i s an embarrassment to the family. Gender discrimination can also underpin early marriage. Girls may be married young to ensure obedience and subservience within their husband's household and to maximize their childbearing. In addition to the potential for maternal incompetence, early marriage can have serious harmful consequences for children, including the denial o f the girl's education, health problems caused by premature pregnancies that may lead to higher rates o f maternal and infant mortality and sexually transmitted diseases, including HIV/AIDS. Moreover, in societies where early marriage i s common, children who refuse to marry or choose partners against the wishes o f their parents often become the victims o f abuse or are socially ostracized. In Guinea-Bissau, UNICEF is using daily broadcasts on television andradio informing girls and their families o f the consequences o f early mamage. 6.6 Inspite of the progress made, adult illiteracy is about 58 percent, among the 10` highest inthe world, with sharp differences between the male and female population (see table 6.3 below). Only five countries perform worse than Guinea Bissau on female literacy (Niger, Burkina Faso, Mali, Iraq and Benin). Data from the 2005 household survey suggest a similar trend with an overall illiteracy rate o f 47.5 percent for all, population above 15 years old and 63.2 percent for the female population. About 70 percent o f all illiterates live in rural areas. Illiteracy among rural population above 15 years old reaches 58 percent and 73 percent for rural females (compared with 37 percent o f the rural adult males). Table 6.3: Adult illiteracyRates(percent)for populationabove 15 years of age) 1980 1985 1990 1995 2000 2003 % illiterate adult Males 68.9 63.4 57.7 51.7 45.9 42.2 %illiterate adult Females 93.3 90.5 87.1 82.5 76.5 72.4 % adults (Total) 81.4 77.3 72.8 64.5 61.6 57.7 Source:UNCommon Database (UNESCO estimates). http://globalis.gvu.unu.edu/indicator_detail.cfm?~dicatorID=l26&Country=GW - 91 - 6.7 Dissatisfaction with public education in general was still relatively high in 2002. The classification o f pupils by the type of school attended using the 2002 light household survey showed an overwhelming dissatisfaction with the public education system (see Table 6.4). As expected, 81 percent o f the children in public schools seem more dissatisfied with conditions in those schools compared to 19 percent in private schools. The high dissatisfaction with the public school system was attributed to poor teaching, inadequate teaching personnel and lack o f books and supplies. Remarkably, a higher proportion o f public school students compared to private school students thought the cost o f education was too high. The motivation behind this response is not exactly clear since private schools in Guinea-Bissau are generally more expensive than public schools. The likely reason is that the respondents may be alluding to the opportunity cost o f public education, which may be higher considering what they are getting for their money's worth. It may also suggest that those that attend private schools belong to socioeconomic groups that are relatively better off, and therefore consider the level o f school fees to be less of a constraint. Table 6.4: Reasons for Dissatisfaction by Region in 2002 (in percentage) Bissau Bafata Gabu Cacheu Oio BiomboBolama QuinardTombali Not Satisfied (%) 56.69 64.13 46.46 47.86 66.86 63.63 70.92 Lack ofbooks/supplies 33.33 48.13 23.61 31.90 48.95 40.99 42.73 Poor teaching 13.67 9.57 9.54 8.70 15.10 3.36 13.23 Inadequate teachers 8.22 23.6 10.59 23.98 21.65 19.67 15.03 Poor facilities 12.27 34.03 17.30 12.32 25.56 28.86 39.97 High fees 8.22 23.6 10.59 23.98 21.65 19.67 15.03 Source:StaffEstimatesbasedon the Guinea-BissauLight HouseholdSurvey (ILAP) Data, 2002 Table 6.5: Reasons for Dissatisfaction by Type of School in 2002 (in percentage) Lack o f Poor Inadequate Poor High National Not satisfied books/supplies teaching teachers facilities fees Public 75.4 81.33 79.78 92.06 91.83 76.49 91.83 Private 24.6 18.67 20.22 7.94 8.17 23.51 8.17 Source: StaffEstimatesbasedon the Guinea-BissauLightHouseholdSurvey (ILAP)Data, 2002 - 92 - 2. EFA andBasicEducationService DeliveryandUtilizationin Guinea-Bissau 6.8 Guinea-Bissau adoptedthe DakarFrameworkfor Action, EFA at the World Education Forum held in Dakar (Senegal) in early 2000. The Forum agreed on six main goals for EFA, two o f which became MillenniumDevelopment Goals Box 6.3: EFA and MDGs for education later in2000 (see Box 6.3, 1. The Six Goals ofthe Dakar Forum across). During the same year, Guinea- Bissau adopted its EFA National Action Goal 1. Expanding and improving comprehensive early childhood care and education, especially for the most Plan, which aimed at providing vulnerableanddisadvantagedchildren. compulsory free and non discriminatory Goal 2. Ensuring that by 2015 all children, particularly basic education. The initiative was part girls, children in difficult circumstances and those belonging to ethnic minorities, have access to and o f the education sector program o f the complete free and compulsoryprimary education of good Government's Poverty Reduction quality. Strategy (PRS). Goal 3:Ensuring that the learning needs of all young people and adults are met through equitable access to appropriate learningandlife skills programs. 6.9 The EFA initiative has Goal 4. Achieving a 50 percent improvementin levels of contributed to increasing public adult literacy by 2015, especially for women, and equitableaccess to basic and continuingeducation for all spending on basis education.Since the adults. adoption o f EFA, the Government has Goal 5. Eliminating gender disparities in primary and constructed several hundred new low secondary education by 2005, and achieving gender equality in education by 2015, with a focus on ensuring cost classrooms and eliminated tuition girls' full and equal access to and achievement in basic and book fees inpublic primaryschools education ofgood quality. in 2000. As a result, public expenditure Goal 6. Improving all aspects of the quality of education and ensuring excellence of all so that recognized and on education improved from 1 to 3 measurable learning outcomes are achieved by all, percent o f GDP from 2000 to 2002, and especiallyinliteracy, numeracy and essentiallife skills. further increased to nearly 4 percent o f Source: The Dakar Frameworkfor Action. Educationfor GDP by end-2004. During 2002-04, All, para. 7, Paris, WESCO,2000. public spending on basic education grew on average by nearly 6 percent per 2. MDGsRelating to Education for Guinea-Bissau annum (see Table 6.6 below). Primary, Goal. Achieve universalprimary education. secondary and adult alphabetization Target. Reach an overall GER in basic education of 98 programs were allocated nearly 80 percent by 2015. Goal. Promotegenderequalityand empower women. percent o f total spending on Target. Reach a GER of 69.7 percent for girls by 2005 education.'02 The remaining 20 percent and eliminate gender disparity in primary at all levels of supported training and other scholarship education no laterthan2015. programs in tertiary education. The Source: UNESCO and Ministry of National Education of policy o f supplementing attendance in Guinea-Bissau. local universities with training inforeign institutions o f higher learning has been inplace for a number o f years,'03 and is designed to build capacity in areas where the local university is not equipped to provide capacity. 102 This refers to current expenditures only. Public resources werejust enough to pay salaries, and other current spending. Therefore, little public investments have been made in education and health during the period under study. Even if the national budget for education has increased in real terms between 2000 and 2004, the execution rate has often been less than 50 percent of the budget voted by the Parliament. In fact, the public finance effectively allocated to education has not even been enough to cover recurrent salaryexpenditure. lo3 tostudyabroadhavebeencurtailedsignificantlyinthelastfewyearsandinmostcasesstudentsreceivetheirstipend Grants irregularly. - 93 - The question, however, i s whether there is a mechanism to get those graduate students to come back home once they complete their studies. There i s no data on the number o f students who returnbut anecdotal evidence suggests that only a small proportion make it back to Guinea-Bissau, which raises the question as to the efficiency o f the use o f those resources, especially at a time when the educational system within the country i s in dire need of funding. External donor assistance provided the bulk o f the financing, with the World Bank-supported Basic Education Project, providing on average about 20 percent o fthe annual education sector budget since during 1998-2004.'04 Table 6.6: PublicEducationSpendingby Level, 2002-04 Year 2002 2003 2004 (inmillionofCFAF francs) Total Current Expenditures on Education 4,322 4,703 5,049 Alphabetization 95 197 307 Pre-school 39 41 44 Primary Education 1611 1717 1806 Elementary (EBE) 1129 1207 1275 Complementary (EBC) 481 509 531 Secondary Education 1766 1873 1950 First Cycle 642 689 727 Second Cycle 674 682 680 Technical & Professional 449 500 542 Tertiary 810 873 940 Local University Education 172 203 237 Foreign University Education 637 669 703 (inpercentageoftotal) Alphabetization 2 4 6 Pre-school 1 1 1 Primary 37 37 36 Secondary 41 40 39 Tertiary 19 19 19 Memorandum Item: Total Current Expenditures on Education (in% o f GDP) 3.0 3.4 3.5 GDP (inbillion o f CFAF francs) 141.9 138.7 142.6 Source:Ministry of Educationof Guinea-Bissau 6.10 During 2002-04, there was a consistent increase in per capita public spending (unitcost) as aratio o f GDPper capita for primaryschool students as well as for teachers inthe same cycle. The unit cost on students innominalterms increased from 5.6 percent o f GDP per capita in 2002 to 6.4 percent o f GDP per capita in 2004.'05 Similarly, teachers' unit cost increased from 1.7 percent to 1.9 percent during the same period (see Figures 6.5a and 6.5b).lo6 lo4 Basic Education Support credit (FIRKIDJA)intheamount ofUS$ The 14.3million was approved by the Bank in 1997 and was closed on June 30,2005. 'OsThe corresponding real values of the unit cost followed the same trend as inflation (measured by the change in consumer price index (CPI)) remained low and stable at around 3 percent per annum over the period under consideration. lo' previouslyindicatedinfootnote#65, theincreaseofpublicfinancingallocatedtotheeducationbudgethasnottranslatedin As additional funding for the education sector, because the budget's executionrate has beenvery low for the last few years. - 94 - 99 Figure6.Sb: Unit Cost Per Figure 6.5a: Unit CostPer Studentin EBQ Teacher inEBE,2002-2004) 2002-2004 6.8 6.61 2 6 4 3 g 6 2 1.8 U 5 6 s 1.7 ,"5 8 8 1.6 5 6 5 4 1.5 I 5 2 2002 2003 2004 2005 I I 5 2002 2003 2004 2005 1 6.11 The Government's policy of subsidizing books and school fees under Flgure 6.6: Ehrollment Rates in Basic EFA contributed to improve enrollment Education, 1997-2003 (in percentage) and accessibility rates in basic ed~cation."~ InGuinea-Bissau as in other 100.07 9 1.0 low-income countries, the lack o f income i s 80.0 the main constraint for attending school. 60.0 Hence, poor households often make 40.0 judgments about the relevance o f schooling 20.0 before making the decisions about which 0.0 children to send to school. When Guinea- 1997 1999 2001 2003 Bissau started implementing its EFA national action plan in 2003, many public schools very rapidly experienced a surge in ~ enrollment numbers. Information provided by the Ministry o f Education o f Guinea- Bissau indicates that gross enrollment rates (GER) in basic education (computed as the average GER in the primary and elementary levels) rose steadily from 57.8 percent in 1997 to 91 percent in 2003 (see Figure 6.6, above).lo8 The increase was mainly attributable to record enrollments in primary school, with rates exceeding 100 percent during the period considered in some regions. In the case o f Guinea-Bissau, it is not uncommon for GER inthe primaryto be higher than 100 percent. Several reasons could account for this seemingly anomalous situation. The first reason is that children who missed out in the past on education are being encouraged to c a t c h - ~ p . In ' ~ ~this regard, sources at the Ministry o f education indicate that, several NGOs have set up programs in various regions o f the country to provide basic education for young adults who otherwise would have given up on education. Second, the elimination o f tuition fees in primary education created a surge in demand for education while at the same time parents who lo' primary schoolGERis the proportionofthe total numberofpupilsinprimary 1-6,irrespective ofage, expressedas' The percentageof the populationof7-12 year olds. lo* student population and the number of teachers in the basic education increasedproportionately.This resulted in a The roportionateincreaseinbothpopulations, thus maintainingaconstantstudent-teacherratio during the periodconsidered. The samemay apply if children are allowed to enter school earlier than the prescribedage of enrollment. - 9 5 - did not enroll their children in schools during the conflict were eager to put them in schools once the conflict was over. Third, significant amounts o f repetition o f school years by children, who are not achieving appropriate levels o f education, as is common in Guinea-Bissau, could also increase primary school enrollment rates above 100percent. In the long term however, it is expected that these rates will decline and stabilize slightly around 100percent as most o f the over-aged pupils would be leaving the system, making the GER almost close to the net enrollment rate. Of course if poverty increases the opportunity cost o f schooling will probably increase which inreturn will push children to drop out early without completing the six-year primary education cycle. Indeed, given the high incidence o f poverty in Guinea-Bissau, parents may decide to interrupt the education process o f their children (mainly girls who are converted as domestic workers or prematurely wed). An analysis o f child labor and schooling decisions o f households i s provided inBox 6.4 below. 6.12 The accessibility to primary education measured by the gross intake rate (GIR) has exceeded 100 percent Figure 6.7: Gross Intake Rates (GIR), 2002- 04 in FBE during 2002-04 (see Figure 6.7).'10 A 1.60 GIR above 100 percent is an indication 1 A n 1 o f the presence o f under-aged and/or over-aged children enlisted in the primary school age group. The high interest in primary education could be attributed to several reasons. First, the government's policy to provide free and compulsory basic education at this 2002 2003 2004 levei, may-have served as an incentive I GIR (year one) GIR (year four) for many parents who, otherwise, could have been discouraged by their inability to pay the tuition for their children. Second, the government incollaboration with other donors andNGOs, especially those based inrural areas, started offering food and beverages to parents who enrolled their children, especially female children in school. This incentive-based policy i s likely to have made a significant and positive impact on the gross intake ratio. Third, some efforts mostly through donors financing' '' was done to build new classrooms, provide textbooks and some school materials and provide in-service teacher training, all o f which contributed to stimulate the demand for education and made basic education services slightly more attractive. 'lo grossintakerateisameasureofthetotalnumberofnewentrantsinthefirstgradeofprimaryeducation,irrespectiveofage, The expressed as apercentageof the populationof the official schoolage to primary education. 'I'The government-IDAfinancedprojectFirkidja, alreadymentioned previously, supportedthe delivery of educationservices between2000 and 2005. - 96 - Box 6.4: ChildLabor and SchoolingDecisionsof HouseholdsinGuinea-Bissau A parent's decision to send a child to school, work or both is a time allocation decision, as both activities could be competing for the child's time. How households decide over schooling and labor force participation o f children is by all indications, one o f the most important development concerns, since the impact o f this decision on human capital accumulation i s likely to have profound short and long-term implications not only at the household level, but also at the national level. An econometric specification that specifically takes this interdependency into consideration can be used to characterize the child's schooling and work decisions jointly. A bivariate probit model tests the likelihood o f children working and going to school conditional on such household characteristics as the (a) household size variables and their square (number of infants, children and adults); (b) characteristics o f the household head, including the gender o f the head, the age group the headbelongs to, the marital status o f the head, the migration status o f the head, hisiher level o f education; the employment status o f the head, hisiher sector o f activity, and whether helshe works in the public or private sector; (c) the region where the household is located; and (d) household access to basic services such as potable water, schools, public transportation, food market andhealth facilities. The results o f the econometric estimation are providedbelow: Determinantsof ChildLabor andEmploymentin2002 Full Sample Urban Rural InSchool Working InSchool Working InSchool Working DemographicCharacteristic Numbero?infants(under-5s) inhousehold -0.16 NS N S N S -0.15 0.11 Square ofnumber of infantsinhousehold NS -0.02 N S NS N S -0.02 Numberof children(aged 5-14) inhousehold 0.45 NS 0.65 -0.60 0.43 NS Square ofnumber ofchildreninhousehold -0.04 - -0.05 0.01 - 0.07 -0.04 0.01 Numberof adults (aged 15-64) inhousehold 0.13 0.23 0.44 NS 0.10 0.24 - Square of number of adults inhousehold NS -0.02 - -0.03 NS NS -0.02 Gender of Head HouseholdHeadis Female 0.41 NS 1.41 NS 0.42 NS SubjectivePoverty ProblemFeedingHousehold -0.28 0.21 -0.75 0.71 -0.30 0.27 Educationof the Head PrimaryEducation 0.44 - - NS -0.18 0.67 0.45 - -0.26 SecondaryEducation 0.55 - NS -0.33 1.01 0.59 -0.41 Tertiary Education 0.81 -5.90 6.03 -5.50 N S -5.88 Sector of Employment(Head) ConstructiodIndustry NS - NS -0.30 N S N S -0.31- TransportKommerce - -0.56 0.27 N S N S - -0.39 0.34 Education/Health/Serices - 0.48 -0.51 N S Ns 0.60 -0.54 Administration 0.48 -0.60 N S NS - -0.54 0.45 Access to Basic Services (in minutes) PotableWater (<15) NS NS N S NS N S NS FoodMarket(45) NS -0.29 0.86 NS NS -0.31 Public Transportation( 4 5 ) - -0.27 NS -0.94 NS N S NS PrimarySchool (<15) 0.91 - -0.24 NS NS 1.06 -0.23 SecondarySchool(<15) N S N S - - -1.25 NS 0.53 -0.42 HealthFacility ( 4 5 ) N S NS - NS 1.02 NS 0.24 ~ RegionalDummies Bissau 0.95 -0.66 Bafata 0.47 - 0.25 Gabu 0.37 -0.24 Cacheu 0.67 -0.43 Biombo/Bolama 0.42 N S QuinardTombali 0.53 NS Source: World Bank staff estimates. NS: Not significant. Displayed coefficients are significant with a 10% level o f confidence. Underlined coefficients are significant with a 5% level of confidence. Bold coefficients are significant with a 1% level of confidence. To be continued ...I... - 97 - Box 6.4 (continued) The analysis reveals that the domestic responsibilities required inhouseholds with a highnumber o f infant children are likely to drive child labor and decrease the probability o f enrollment. The results show that outside the region o f Bissau, a unit increase in the number o f infants will significantly decrease the probability that the parents o f that householdwill sendtheir children to school. Among the characteristics o f the head o f household, the results consistently show a strong preference for schooling infemale headed households compared to households headed by males. If financial well-being is a major determinant o f primary education in Guinea-Bissau, then this result i s further proof that female heads o f households are economically better-off than their male counterparts as shown in the second chapter. Other household characteristics which seem to play a major role in the decision o f parents to provide primary education to children are the educational and employment status o f the head o f household, and whether or not the household head had a problemmeeting the food requirements o f the family. Ineach o f the samples, particularly the sample for regions outside Bissau, the results show that the higher the educational attainment o f the head, the stronger the preference for schooling and the deterrence from child labor. As pointed out by Grootaert and Patrinos (1999), when the educational status o f the head serves as an indicator for the preference o f child education, it may also work as an important policy variable to the extent that it i s used as a targeting mechanism for identifying those children at higher risk o f not going to school: Inthe sample for all regions outside Bissau, employment ofthe householdheadinthe Transport/Commerce and EducatiodHealth sectors appears to have a negative and significant effect on child labor but a positive and significant impact on school enrollment. The effect o f working in the construction industry is positive and not significant for schooling but negative and significant for child labor. Another remarkable result from the analysis i s that household heads that had a problem meeting the food requirements o f their households seem to have a strong and significant likelihood o f not enrolling their children in school, preferring instead to make them engage in child labor. The impact o f this effect i s strong, particularly, in Bissau, where the cost o f living can be extremely high for people who do not have a reliable source o f revenue. Surprisingly, the regression results do not present a clear picture on the impact o f basic services on household decisions to educate their children or make them work. In the sample for Bissau, households situated 14 minutes or less from food markets and health facilities seem to have strong and significant preference for educating their children. Interestingly, proximity to secondary schools and public transportation seem to diminishthe likelihood o f parents to send their children to school. Correspondingly, the data for Bissau does not provide any evidence on the impact o f any o f the infiastructural services on child employment. Inthe sample for the rest o f the country, there i s evidence to suggest that the location o f primary schools near households i s likely to have a strong, positive, and significant effect on the decision to sendchildren to school as well as serve as a deterrent to child labor. There is no evidence that food markets will encourage schooling butproximity to them is likely to serve as a disincentive to childlabor. Contrary to the effect in Bissau, health facilities situated in the rest o f the country seem to have a positive effect on work. In the full sample, we also tested possible regional influences on household decisions to educate children instead o f having them work to help sustain the household. The results indicate that households in all regions are more likely to provide education for children compared to children inthe reference region o f Oio. With respect to child labor, however, it appears that children in Oio have a better chance o f not working than children inBafata and Gabu. - 98 - 6.13 The finding of the 2005 QS seem to suggest that EFA initiative has had- positive outcome. About 90 percent o f parents acknowledged that the basic education service was 'good or satisfactory'. The contrast with the situation in 2002 showing that the majority o f people surveyed were dissatisfied with the quality o f education suggests that EFA has indeed had a positive effect on education services (at least on enrollment rates). 6.14 While the EFA program seems to have a positive impact on access and participation in primary education, there is little guaranty about an improvement of the internal efficiency of the education system. Access (intake) and participation (enrollment) define the populations having access to learning, but these indicators do not tell whether pupils will complete their primary education. That is, enrollment rates provide a general idea about the physical capacity o f the educational system, in terms o f its ability to accommodate students at a particular level o f education, but it does not provide an indication o f the performance o f the education system. In Guinea-Bissau, the internal efficiency o f the education system remains low while access has improved. Despite some improvement, especially in first and second grade, the average repetition rate inprimary remains around 20 percent (it varies depending on grade level). The drop out rate i s also an important measure o f the education system internal efficiency. Students that repeat a grade once or twice are likely to drop out. In fact, many children drop out o f school before they have achieved the necessary skills to function as literate individuals. To really measure the performance o f the education system, one has to measure what children are learning and the level o f proficiency achieved as well as to assess the amount o f teaching takingplace. 6.15 By the same token, the SR in grade four - which measures progression in the educational system - was estimated at 58 percent in early-2005 (an increase o f 14 percentage points from 2002). This suggests that by 2005, only 58 percent o f the cohort o f children who had entered primary school four years earlier were retained through to grade 4. The increase in the SR i s a good sign which could be attributed to the corresponding decrease in the drop-out rate over the reference period. Nevertheless, this result also suggests that 42 percent o f the children inthat cohort could not make it to the end o f the first cycle o f primary school.'12 If four years o f primary school i s to b e considered as a prerequisite for sustainable literacy, (or more likely five or six years considering the quality o f education inGuinea-Bissau), then policy makers would have to redouble their .efforts to improve student retention rates, which i s needed in order to increase the primarycompletion rate. 6.16 The considerable difference between the GIR at the first grade o f primary school and the intake rate in the final grade o f (the first cycle of) primary school, the net o f repeaters i s another illustration o f the need to improve retention rates. In general, the completion o f primary schooling remains a major issue. In many low-income countries, children are pushed out by costs, unfriendly classroom environments or the need to supplement family income. Although the SR to grade 5 increased in many countries 112This phenomenon i s also confirmed by studies on other developing countries, which have shown that high enrollment may be accompanied by low primary completion rates (UNICEF, Global Education Digest, 2004). - 99 - during the 1990s (and in some cases rose by more than ten percentage points between 1998 and 2001), they fell short o f 75 percent in thirty out o f ninety-one countries with available data, and were below 66 percent in half o f the sub-Saharan African countries. Substantial declines in many countries reflected deterioration in education quality (UNICEF, 2003). The point here is that, educational policy, through EFA, underlines that need for all children to start grade one, but it also called for all children to complete a primary education o f good quality. Guinea-Bissau's EFA National Plan of Action seems to have failed until now to retain students in the school system until the desired level o f completion.' l3 6.17 Despite the apparent success of Guinea-Bissau's EFA initiative, the transition from the primary to the secondary levels remains dubious. The transition rate (TR) to secondary school i s measured by the number o f students admitted, net o f repeaters, to the first grade o f secondary school in a given year, expressed as a percentage o f the number o f pupils enrolled in the final grade o f 1 primary education inthe previous year. Inthe case o f Guinea-Bissau, the TR was estimated , Figure6.8: Transition Rate in Primary& SecondaryEducation2002-04 at about 81 percent in2002 but systematically 0.82 dropped since then to about 75 percent in 0.81 early-2005 (see Figure 6.8). The persistent 0.8 decline in the TR could be a signal o f 0.79 bridgingproblems between the two cycles or 0.78 levels o f education, due either to deficiencies 0.77 in the examination system, or inadequate 0.76 admission capacity in the higher cycle or 0.75 level o f education, or both. Data provided by 0.74 the Ministryo f Education, show that the GIR I 2002 2003 2004 for the first year o f the secondary school cycle averages 36 percent for the period o f Transitionrate (EBC-ESG) observation. The limited intake capacity could very well be the bottleneck restricting the movement o f children from the primary to the secondary cycle. It could also be due to the high cost o f secondary education or simply the general lack o f interest inpursuing an education beyond the primary level, given the poor remunerative incentives inthe formal labor market. This does not, however, rule out the possibility o f other problems related to the administering o f examinations or physical problems concerning the availability o f adequate school facilities. While measures o f access, participation or completion, are not measures of achievement, they do, however, provide very valuable information about the viability o f an education system, especially those features about the system that are amenable to policy change. Considering the country's fragile economic situation, the sustainability o f the EFA initiative and the likelihood to make progress inachieving the MDGs ineducation would require continued support from the international community (see Box 6.6). `13 Due to the lack of data on students who have actuallygraduated,the Ministry of Education of Guinea-Bissau(MOE) uses a proxy indicator (for the rate of completion), which is calculated based on the number of children enrolled in the last year of primary education,net ofrepeaters. - 100 - Box 6.6: Sustainability of the EFA Initiative Until now, Guinea-Bissau's EFA National Action Plan has been su ported in large part by the international community through the Government National Education Program ( ). r The fimding initially committed (now nearly disbursed) is far from being sufficient to cover the total financing needs o fthe EFA National Action Plan. The World Bank-supported Basic Education Project, which provided a significant amount o f external financhg to education since 1998, was closed on June 30,2005. Initially, external support to EFA was meant to be short - lived, as it was expected that the Government will be able to self-finance the program after the country's economic situation had recovered. This was probably unrealistic. Unfortunately, almost six years after the war, restoring political stability and good governance - necessary conditions for private sector development and growth -remain a major challenge. Given the country's difficult fiscal situation, it is unlikely that the Government would be able to pursue the funding of the EFA in the absence of further external assistance. Inrecent years, the Government's budget for education has been hardly sufficient to pay for salaries o f teachers. This situation is likely to persist at least for some time as the fiscal stance is expected to remain difficult for the next two to three years. Untilthen, Guinea- Bissau faces the risk o f experiencing high drop out rates because households would not be able to afford high educationcosts. The issue o f sustainability o f EFA can be illustrated by comparing the estimated average unit cost o f education per student for the representative householdand the estimated average disposable income that the representative household can set aside to pay for education costs. The results o f these estimations are provided in the table below. Estimationof the Income and the Unit Cost o f Educationfor 2006 and beyond (inCFA francs) Estimationof the annualincomeper capitafor the poor A. Total population (number of inhabitants) 1,500,000 B.Number ofpoor inthepopulation(60% ofthepopulation) B=Ax60% 900000 C. Nominal GDP (inCFA) 142,600,000,000 D.Agricultural income(60% of GDP) D=Cx60% 85,560,000,000 E. Disposable income per capita for thepoor (inCFA) E=D/B 95,067 El. Sustenanceandother expensesE1=E/2 47,533 E2. Health careE2=E/4 23,767 E3. Education E3=E/4 23,767 Estimationof the potentialannualunit cost of educationfor the poor F. Total Educationcurrent budget (inCFA) 5,050,000,000 G. Salaries(inCFA) 2,000,000,000 H.Potentialtotal educationcosts for thepoor H=F-G 3,050,000,000 I. unitcosteducationforthepoor(averagehouseholdsize=7)I=W(B/7) potential 23,722 m:BankStaff Estimates It is assumed that: (i) agricultural GDP represents the total annual disposable income o f the poor;") (ii) households are able to devote only one quarter o f their disposable income to education costs; and (iii) the in absence o f external assistance the Government will be able to pay for only teachers' salaries, while parents take care o f the tuition and book fees.@) In these circumstances the share o f disposable annual income per capita available for the household's education spendingis estimated at CFA 23,767. Compared to the average unit cost o f the household which is estimated at CFA 23,722, parents would be able to send only one child at a time to school per year. Knowing that the average household size in Guinea-Bissau is about 7 individuals, it is safe to argue that a lot o f children will simply not attend school, and those already enrolled will drop out because parents would not afford to pay for the ensuingcosts .(t) Based on the results o f this simple analytical framework, it is likely that EFA will not be sustainable beyond 2005 ifthe programrelies solely on domestic financings. ") Financing of the Government's Education Program Since 1998 were as follows (US$ million): World Bank (14.5), Sweden (3.0), Afrizan DevelopmentBank(18.0), Plan International(6.0), World FoodProgram(1.9) andUNICEF/FNUAF'(4.0). (') Forthe sake ofsimplicityit is also assumedthose householdsdo notpaytaxes. @)Under-fundingofthe EFA programmay leadto adecreaseinthe quality ofeducationservices inprimaryschools. Inthis context, richhouseholds wouldratheropt for sendingtheir kidsto privateschools, henceleavingthe poor to supportallthe burdenofthe cost. (') Inflationis expectedto remainunder controlat less than 3 percent. - 101- 3. EFA andEquitabilityof PublicResourceAllocationto Schooling 6.18 This section uses a benefit incidence analysis to determine the distributional characteristics o f public spending on education in Guinea-Bissau. Figure 6.9 Figure 6.9: Incidence and Coverageof Public i s a visual presentation o f the incidence Spendingon Education in 2002 and coverage o f public expenditure on the different levels o f education in 1.oo Guinea-Bissau (based on the 2002 household survey data). Three 0.80 indicators are represented inthe Figure: 0 the share o f the poor that benefits from 3 f 0.60 public transfers (vertical axis), the 1 share of the total income that reaches the poor (horizontal axis), and the size of the transfershncome (proportional to the size o f the bubbles). Four types o f o'20 0.00 programs (pre-school, primary, 0.00 0.20 0.40 0.60 0.80 1.00 secondary and tertiary levels o f Target education) are analyzed and the equitability o f the distribution of the 0 Primary Q Secondary Tertiary 0 Pre-school resources for those programs, vary significantly. 6.19 Allocations to primary and secondary education are the largest public transfersto households. The Primaryand secondary levels o f education appear to be the largest recipients o f public spending, while allocations to tertiary (excluding spending on students studying abroad) and pre-school education are considerably smaller as indicated bythe sizes o fthe bubbles. These findings seem to indicate that while resource allocation inthe primary and secondary education is not a concern at least at the macro level, there i s a need to improve the efficiency o f spending inthe various programs within each level. With regard to primary education, the results confirm the positive impact o f the EFA initiative on spending in basic education as foreshadowed in the previous section. With respect to secondary education, the results seem to support earlier allegations regarding the need to create a bridging or transition mechanism with primary education through a system of incentives to parents, pupils and school teachers. Similar to the cases o f Brazil and the other countries, providing income subsidies to families with school-age children on the condition that each child attends school i s likely to limit dropout rates in the primary. At the same time, teachers in both levels o f education should be adequately trained and remunerated if they are to delivery quality teaching services. It is estimated that at least 50 percent o f teachers in both levels o f primary education do not have the required qualifications to teach at that level. It is worth noting that there are two main schools inthe country for training primaryand secondary school teachers but the absence o f any continuing education programs (i.e.: in-service teacher training) for certified teachers makes it impossible to train even certified teachers on proposed reforms in the school system. Public resources inboth levels o f education should therefore be allocated - 102- in a manner allowing these incentive mechanisms to operate in order to limit dropout rates and ensure an orderly transition o f pupils from the primary and secondary levels. 6.20 In Guinea-Bissau, primary education and secondary education are potentially `good' for the poor. The results suggest that while 62 percent o f poor households receive benefits for primary education, public transfers from secondary and tertiary education respectively reach only about 50 percent and 37 percent o f the poor.. Beyond the numbers, these results indicate how important the first two levels o f education are crucial for reducing poverty in Guinea-Bissau. It is worth noting that while the adequacy o ftransfers for bothtertiary and pre-school education are about the same, in terms o f the coverage o f these programs, a higher percentage o f the poor benefit from pre-school education. 6.21 In Guinea-Bissau, basic education appears to be the only level of education that is best-targeted to alleviate poverty. Pre-school and primary education have the best targetingincidence and coverage. Eventhough the adequacy o f pre-school education can be improved, it has, along with primary education, the best targeting incidence and coverage. The adequacy o f public transfers for secondary education i s high and it has a fairly good coverage but the targeting incidence i s quite low. Tertiary educationhas a low coverage o f the poor, a weak targeting incidence, and i s inadequately funded from a poverty alleviation-perspective. As discussed in earlier chapter, about two-thirds o f households in Guinea-Bissau are below the poverty line. A targeting mechanism which gives less than that amount o f the benefits to the poor would not be considered pro-poor or well-targeted to alleviate poverty. The results show that with about 60 percent o f primary school allocations going to the poor, it is the only level o f education that i s best- targeted to alleviate poverty. The share o f public transfers inpre-school education going to the poor does not benefit all households below the poverty line; nonetheless, with fifty five percent o f those benefits receivedby the poor, one can argue that a significantly high proportion o f their population share i s targeted. The same can, however, not be said for tertiary education where the target incidence is low at only thirty percent. These findings underscore the important fact that primary education is the main gateway o f access to formal education. As such, high spending programs in the primary leading to high enrollment rates are necessary but non sufficient conditions for the internal efficiency o f the schooling system as indicated earlier. B. UFANDHEALTH SERVICE 6.22 Good health is important for all, especially for the poor whose physical well- being is a critical determinant o f economic well-being. The poor are, on average, more. prone to illness because they are often more exposed to disease-causing agents such as polluted water and inadequate sanitation; they often live in crowded conditions where infections spread easily; they have lower access to preventive health services and their poor nutritional status makes them more vulnerable to disease. Guinea-Bissau recently prepared a National Health Development Plan (PNDS), which established the rules and the priorities, anddefined the strategies for the activities inthe health sector. The first and second plans covered the periods 1997-02 and 2003-08, respectively. In addition to implementingpreventive health measures, especially inthe areas o f maternal and infant - 103 - care, another major objective o f the PNDS is to make healthcare affordable and accessible to those with limited financial means. In the early 199Os, the country also adhered to the BI; however, the Government's program did not get o f f the ground and, as a result, people in Guinea-Bissau have had to continue paying the normal prices for services that many cannot afford. In 2003, the Government adopted a law for the implementation of the UFinpublic sector health centers and hospitals. This section seeks to assess the impact o f the cost recovery system on public health service delivery in Guinea-Bissau. The remainder o f the section will focus on the following points: (i) situation o f the health sector prior to UF; and (ii) implementation o f UF and impact on health service delivery and utilization. The analysis is based on the 2002 household survey data andmacroeconomic data from 2002 to 2004. 1. Situationof the HealthSector Prior to the adoptionofUF 6.23 As the implementation o f UF begun after 2002, the 2002 ILAPhousehold survey data will be used to assess the situation prior to the implementation o f the initiative. With regard to the BI, although it was adopted since the early 199Os, the implementation of the initiative has effectively started only after 2002. It is therefore unlikely that the BI had bore any significant positive outcome prior to 2002. 6.24 The demandfor healthservices was particularlyhigh in rural areas in 2002. The type o fhealthcare provider apatient consults for the treatment o f an illness can make a difference inhow effective the treatment is and how rapid the period o f recuperation i s likely to be. In general, the majority o f patients who sought modem professional health- care in Bissau in 2002, visited private clinics. In the other regions people's preference went toward regional health centers. Findings o f the survey indicate that hospitals and regional health centers played the most significant role inmeeting the healthcare needs of the nation. The regional health centers are located inthe main urban city o f each region. They provide a wide range o f health care services such as maternal and child health care, general and other specialized consultations, basis surgical services, laboratory and pharmacy services. People and mainly the poor often visit these centers because they find a wide variety o f services at a low cost. 6.25 At the national level, more than fifty percent o f all those who consulted professional health providers in the four weeks preceding the survey went to regional health centers (Table 6.7). The use o f these facilities decreases from the poorest to the wealthiest quintile, which explains why a higher percentage o f the number o f people who use regional health centers was higher in the rest o f the country than in Bissau. From Table 6.8, 81 percent o f the residents o f Oio, the poorest region inthe country, relied on regional health centers for their healthcare needs. The poverty decomposition o f those who used these healthcare providers shows that the highest percentage o fpoor people and the extreme poor use the services o f private doctors/dentists. The providers o f these services are often not qualified medical doctors but are nurses with several years o f medical experience who consult patients at home, sometimes without the appropriate, license. The poverty and extreme poverty rates are also high among the users o f traditional healing facilities andpharmacies. - 104- 6.26 Contrary to expectation, traditional healing centers did not seem to be patronized by a significant number o f people. The opinion o f healthcare experts and other social researchers in Guinea-Bissau is unanimous incontradicting the survey results. According to these experts, and anecdotal evidence gathered infield interviews, the people who used these services cuts across different socio-economic classes and for most o f these people, the decision to use these services is so personal that they may not necessarily want to share it with people outside their family circles. Table 6.7: HealthProvidersby LocationandEconomicStatus(in percentage) ' Location and Quintiles Economic Rest of Extreme Status National Bissau Country Poorest 2 3 4 Wealthiest Poverty Poverty Regional HealthCenter 50.79 45.36 52.66 51.66 54.48 53.59 48.77 47.60 59.2 16.3 Private Health Center 7.48 6.25 7.90 5.74 4.73 6.56 11.50 7.65 51.2 12.6 Hospital' 29.36 28.75 29.56 31.39 28.53 30.88 21.07 29.59 58.5 16.6 Private Clinic 6.13 15.36 2.96 0.58 5.28 3.80 6.36 11.05 38.7 2.9 Pharmacy 0.38 0.18 0.45 0 1.17 0.42 0.21 0.11 66.8 11.9 Private Doctor/Dentist 0.47 0.18 0.57 1.90 0.11 0.62 0.12 0.12 87.5 63.3 Traditional Healer 4.25 2.68 4.79 1.36 3.52 3.88 4.49 3.15 65.9 27.0 Other 1.15 1.25 1.11 1.36 2.18 0.26 1.48 0.68 63.8 15.1 Source: Staff Estimates basedon the Guinea-Bissau Light Household Survey (ILAP) Data, 2002 *Hospitals includeregionalandnationalhospitals Table 6.8: HealthProvidersby Region(in percentage) Regions National Bissau Bafata Gabu Cacheu Oio Biom/Bol QuidTomb RegionalHealthCenter 50.79 45.36 48.48 34.19 52.82 81.88 61.38 47.01 PrGate Health Center 7.48 6.25 2.55 4.87 13.61 3.57 13.43 7.15 Hospital' 29.36 28.75 34.1 50.85 21.91 5.61 21.14 38.42 Private Clinic 6.13 15.36 4.03 6.69 1.31 1.78 2.26 1.63 Pharmacy 0.38 0.18 0.42 0.17 0.92 0.30 0.32 0.32 Private Doctor/Dentist 0.47 0.18 1.03 0.26 1.42 0 0.11 0 Traditional Healer 4.25 2.68 8.27 2.46 5.51 6.55 0.89 4.54 Other 1.15 1.25 1.11 0.52 2.50 0.30 0.48 0.92 Source: Staff Estimates based on the Guinea-BissauLight HouseholdSurvey (ILAP) Data, 2002 'Hospitals includeregionalandnationalhospitals 6.27 In the particularcase of malaria, a strikingproportionof patientsfrequented non professionalhealth providers or traditional healers. About 19 percent o f the people surveyed were sick or injured and therefore needed medical help. Of this proportion more than half were victims o f malaria. Surprisingly, the highest number o f cases o f the disease was inthe top two quintiles and inthe region o f Bissau; groups that. are better disposed economically to prevent the contraction o f the parasite (see Table 6.9). A possible reason to this unusualphenomenon is that people inthese groups are in a better position to identify the symptoms o f malaria compared to people in rural areas or inthe poorest quintiles. The latter are likely to be ill-informed about the disease or are more liable to attribute the symptoms o f malaria to other causes. At the national level, more than 60 percent o f malaria patients consulted traditional healers (see Table 6.10). It - 105 - appears that a higher percentage o f malaria patients inthe wealthiest quintile as well as residents o f Bissau also sought this type o f treatment. However, considering the deadly nature o f malaria, it i s disturbing that a muchhigher proportion o f those afflicted with the disease did not seek professional help. The non frequentation of modern health services by the poor may be explained by the lack o f income; however, that o f the richmay signal other factors such as the absence o f programs to inform the population about malaria prevention and treatment, and/or the lack o f malaria drugs and other malaria-related health care supplies. Table 6.9: Selected Health Indicators in 2002 (in percentage) Rest of National Bissau Country Poorest 2 3 4 Wealthiest Sick inlast 4 weeks 19.13 16.84 19.93 16.24 17.34 18.01 20.32 23.74 Malaria 54.40 56.74 53.70 51.48 50.51 50.41 58.39 58.83 Diarrhea 8.5 1 7.12 8.92 8.88 7.50 10.69 8.31 7.50 Accident 2.21 1.22 2.90 3.35 3.11 2.42 1.97 0.83 Dental 2.16 2.46 2.07 2.91 1.54 2.07 2.03 2.29 Skin 3.59 3.50 3.62 4.04 3.95 3.71 3.35 3.15 Eve 3.17 2.33 3.41 3.66 2.53 3.04 3.04 3.50 E& Nose & Throat 2.40 1.55 2.65 2.36 3.14 1.80 2.76 2.05 Source:Staff Estimatesbased on the Guinea-Bissau Light Household Survey (ILAP) Data, 2002 Table 6.10: Malaria Patients who Sought ProfessionalTreatment in 2002 (in percentage) Restof National Bissau Country Poorest 2 3 4 Wealthiest ContractedMalaria 54.40 56.74 53.70 51.48 50.51 50.41 58.39 58.83 ConsultedNPHP or TH' 64.39 69.41 62.83 54.81 63.39 61.34 66.42 71.03 National Bissau Bafata Gabu Cacheu Oio Biombo/Bo QuinardT ContractedMalaria 54.40 56.74 45.10 55.56 65.00 41.77 62.10 49.55 Consulted NPHP or TH' 64.39 69.41 66.21 64.51 62.68 42.27 69.69 68.86 Source: Staff Estimatesbased on the Guinea-BissauLight Household Survey (ILAP)Data, 2002 'NPHP: Non Professional HealthProvider 'TH: Traditional Healer 6.28 Limited access to health services restricted the use of medical services. In 2002, the proportion o f households with access to healthcare services, and the impact on the use o fmedical services varied by economic status and region. About 37 percent o f the poorest households had access to health services compared to 46 percent for the wealthiest. Consequently, the rate o f usage o f medical services was only 9 percent for the poor, as opposed to 19 percent for the rich. The improvement in access in the higher quintiles was reflected in increased usage o f health facilities in those quintiles. In the regions, however, the correlation between accessibility and usage was not very clear. While access was higher inBissau thaninthe rest o f the country (55 percent compared to 38 percent in average), overall, usage remained relatively the same across all regions (12 to 14 percent) (except in Oio where the rate was 7 percent) (see Table 6.11, above). In 2002, the population o f Guinea-Bissau in general was discriminated against in the usage o fmedical services. - 106 - Table 6.11: HealthIndicatorsin2002 (in percentage) Medical Services Access Need Use Quintiles Poorest 36.69 16.24 9.02 2"d 34.97 17.34 11.14 3rd 38.36 18.01 11.43 4th 42.55 20.32 13.39 Wealthiest 45.70 23.74 16.88 Regions Bissau 54.46 16.84 12.22 Bafata 24.67 21.06 13.71 Gabu 41.90 19.69 12.92 Cacheu 41.49 23.23 14.66 Oio 24.03 16.40 7.48 Biombo/Bolama 38.91 21.45 14.10 QuinardTombali 37.90 18.10 12.64 Source: StaffEstimates basedon the Guinea-Bissau Light Household Survey (ILAP)Data, 2002 6.29 The generallevel of dissatisfactionwith the healthcare systemwas quitehigh in 2002, without significant differences across socioeconomic groups and the area o f residency. As shown in Table 6.12 below, a large proportion o f households were dissatisfied with public health services in 2002. More than 80 percent o f the residents o f Gabu, for example, had a bad experience with their medical facilities, and the two issues most o f them were concerned with were the cost o f treatment and the availability o f drugs. With regard to the BI, this finding seems to confirm the ineffectiveness o f the initiative prior to 2 0 0 2 . ~ ~ ~ Table 6.12: Personswho consulteda HealthProvider andwere notsatisfiedbythe ReasonofDissatisfactionin2002 (in percentage) Dissatis- Facilities Long No trained No drugs Treatment fied not clean wait professionals Cost available Unsuccessful Other Quintiles Poorest 63.03 1.56 21.08 4.18 17.14 36.47 5.54 13.25 2"d 66.46 2.69 15.01 5.05 32.59 37.94 9.16 15.47 3rd 68.11 3.01 19.49 4.54 30.82 40.49 9.5 8.72 4th 65.98 2.95 16.34 3.29 28.99 42.15 8.94 7.62 Wealthiest 62.29 4.03 22.26 9.4 25.05 41.45 7.42 7.05 Regions Bissau 65.02 3.01 18.99 5.64 27.17 40.07 8.18 9.90 Bafata 65.00 2.32 24.46 3.57 25.54 34.11 7.68 8.21 Gabu 80.35 7.15 21.87 8.40 41.83 59.71 13.24 13.88 Cacheu 54.84 0.65 10.23 2.62 27.41 35.08 5.02 5.97 Oio 58.33 3.43 14.9 6.77 20.44 31.82 6.99 12.57 Biombo/Bolama 66.69 1.81 25.78 5.57 28.17 39.20 5.00 4.95 QuinardTombali 68.61 1.45 22.05 4.51 34.41 44.24 6.50 5.11 Source:Staff Estimatesbased on the Guinea-BissauLight HouseholdSurvey (ILAP) Data, 2002 114 Gabuwas selectedas pilot region for the implementationof the BI. - 107 - 6.30 Of all people not consulting health facilities in the four weeks preceding the survey, the overwhelming majority (about 92 percent) thought there was no need. Residents o f Bafata, Cacheu, and Oio, have a higher percentage o f respondents who have not used medical care in the last four weeks because it is either too expensive or the facility i s too far away (see Table 6.13). These findings clearly illustrate that prior to the adoption o f the UF, the health system was confronted with numerous difficulties, which were hindering efficient delivery andutilization o f health services. Table 6.13: PersonsSick who did notConsult a HealthProvider andthe Reason Why ( percent) Not Consulting N o Need cost Distance Other Quintile Poorest 90.98 93.18 3.22 2.02 3.17 2"d 88.86 92.21 4.48 2.76 2.90 31d 88.57 91.40 4.83 2.97 3.04 4~ 86.61 91.61 4.08 2.53 3.63 Wealthiest 83.12 90.9 3.80 4.45 4.56 Region Bissau 87.78 94.76 2.29 0.22 3.06 Bafata 86.29 87.95 5.48 6.36 4.45 Gabu 87.08 92.85 3.70 1.31 3.46 Cacheu 85.34 90.09 4.54 5.32 4.11 Oio 92.52 89.33 7.48 4.65 3.05 Biombo/Bolama 85.90 91.43 4.31 3.69 2.59 QuinardTombali 87.36 94.31 1.73 1.56 3.83 Source: Staff Estimatesbased on the Guinea-BissauLight HouseholdSurvey (ILAF') Data, 2002. 2. ImplementationofUF andimpacton healthservice delivery and utilization 6.31 Inrecent years, public sector health expenditures have declined in Guinea-Bissau to the point where nearly all Government fbnding went to salaries. Although Guinea-" Bissau has adhered to the BIsince 1990, manypatients were informally paying for health services 'under the table'. Recognizing the difficulty to cover the recurrent cost o f the health system, the authorities passed a law introducing UF.The law on UFwas a mean o f legalizing this practice and providing more transparency and efficiency in the collection and use o f UF. The new system was considered a viable solution as UF have always discriminated against the poor. 6.32 UF are being collected and managed at the facility level in a fairly. transparent manner. Since 2002, Guinea-Bissau's new cost-recovery system includes the recovery o f drug fees (already covered under the BI), and charges for outgoing visits, lab tests, and other medical visits. So far, the resources are being collected and managed inarelativelytransparent manner. Revenues at the levelofthe facilities are managedby a management committee composed o f the facility's staff and representatives o f the civil society. The UF system i s being carried out in all the 127 health facilities at the national level. In 2004 for example, the amounts collected per region were within the range o f CFAF 6 and 33 million (about US$ 12,000 and 66,000) (see Table 6.14). The total cost recovered in 2004 represented about 5 percent o f the health sector budget. The resources collected were primarily used to pay for incentives to the medical personnel (20-30 - 108- percent). The remainder of the resources served for the payment of drugs and other maintenance costs (30 to 60), and the constitution o f reserves (10-40 percent). In limited cases, 10 percent o f the resources were transferred to the Regional Health Department (see Tables 6.15 and 6.16, forward). Table 6.14: UFCollected by Region in 2004 Regions Number o f healthfacilities Revenue collected (CFAF franc) Medical Drugs visits Total Bissau 9 14411,968 18,35 1,919 33,163,887 Bafata 12 22,072,788 10,577,610 32,650,398 Biombo 7 2,164,016 6,217,091 8,38 1,107 Bijag6s 11 5,533,896 3,936,770 9,470,666 Bolama 6 3,195,760 1,702,936 4,898,696 Cacheu 10 3,697,184 4,683,923 8,38 1,107 Gabu 18 18,494,288 9,865,349 28,359,637 Oio 15 12,151,044 9,159,084 21,3 10,128 SBo Domingos 7 10,348,664 12,585,677 22,934,341 Quinara 13 3,189,988 3,142,699 6,332,687 Tombali 19 11,127,404 5,249,189 16,376,593 Total 127 106,787,000 85,472,247 192,259,247 Source:Ministryof Healthof Guinea-Bissau Table 6.15: Utilization of UFfrom Medical Consultations in 2004 (in percentage of total revenue collected) Incentives Drugs, and Transfers to Savings to the other the Regional personnel maintenance Health costs Direction Bissau National Hospital 30 60 10 Laboratory services 20 60 20 Regions Regional Hospitals 30 40 30 Health Centers 20 40 10 30 Basic Health Units 20 30 10 40 Source:Ministry of Healthof Guinea-Bissau Table 6.16: Utilization of UFfrom Drug Sales in 2004 (in percentage of total revenue collected) Personnel Medical and Savings Incentives other costs maintenance costs Bissau Central Depot 10 60 30 Health Centers 20 40 40 RBgions RegionalDepots 20 40 40 Health Centers 30 40 30 Basic Health Units 30 40 30 Source:Ministry of Healthof Guinea-Bissau - 109- 6.33 It is too soon to determine the impact of the UF initiative on heath outputs and outcomes. Inother parts o f Africa there still seems to be a debate as to the overall impact o f the introduction o f UF on the delivery o f health services. Findings from a number o f countries (Swaziland, Mozambique, Ghana, the Gambia, Zambia) show a decline inutilization rates when user charges were not matched b an improvement inthe availability o f drugs, access to services and quality o f care.'" Evidence so far from Guinea-Bissau as well as the broader region suggests improved levels o f drug availability following the BIandmorerecently the introduction o fUF.'l6 6.34 The UF initiative is, however, believed to have improved health service utilization. Since its inception in 2002, the UF system is believed to have substantially improved the availability o f drugs and the access to health services at affordable costs. Total UF collected in 2004 reached 5 percent o f the health sector budget, o f which adult andinfantkhildren consultation services anddrug sales represented 45 and 55 percent o f total, respectively (see Table 6.14 above). However, the cost o f other specialized consultation services, such as stomach illnesses and rheumatology, remain relatively high for the average citizen. The majority o f patients were treated for pregnancy, respiratory and digestive ailments, and malaria. In the case o f malaria for example noticeable progress has been made in the provision o f drugs and consultation services, in contrast with the situation prior to the UFsystem. 6.35 Nevertheless,there is a need for further information on the potentialequity and distributional consequences of the UF initiative. Evidence from focus groups conducted as part o f the 2005 QS suggest that the poorest elements o f the population may have difficulties covering the costs even o f basic adult and infant/children consultation services and drug costs. It may therefore be necessary to consider targeted exemption policies for those unable to pay. 6.36 In order to ensure equitable access to drugs in rural areas, part of the transportcosts wouldneedto be subsidizedby consumers livingin Bissau.Given the emphasis on cost-recovery, moreover, drug prices are often higher in rural areas compared to Bissau due to the cost o f moving the goods from Bissau to the regions. As the majority o f the poor live in rural areas, this situation may increase the inequality in' the access to drugs in the context o f the BI. Not addressing this issue can reduce the potential benefit o f the UF for the poor. A possible way to address the issue i s to have part o f the transport costs o f drugs shipped to rural areas subsidized by consumers living inBissau. 6.37 While there have been clear improvements inthe delivery o f health services over the last couple o f years, the poor are still facing many constraints in accessing the services provided. Beyond the costs of service provision, distance, the non-availability o f technical staff (e.g. doctors), and the quality o f care are also important factors in excluding people from accessing health services. 115Shehu (1997); Haddadand Fournier(1995); Abel-SmithandRawal(l992) 'I6Soucat, (1995); Soucatet al, (1997) - 110- 6.38 Health facilities would need to be adequately equipped to meet increasing turn out rates. The frequentation o f health facilities is gradually increasing in both central and regional health centers, due to the regular availability o f drugs and improved service. However, the majority o f the facilities, mainly in rural areas, are ill-prepared to meet this surge in demand. Medical personnel are often insufficient and lack adequate skills and training. Moreover, housing problems and low salaries discourage the staff to take assignments in rural areas."' It is critical that the authorities accelerate the implementation o f the ongoing reform rogram in the context o f the PNDS, with the support o f the Bank and other donors."'In the absence o f improvements in these areas, many turn to alternative providers o f health services, including traditional healers (mumndade), self-diagnosis/medication, and in urban areas also to private clinics. Recommendations: Train additional medical staff (both technical and administrative). Buildhousingfacilities for medical staff inrural areas. C. A COMMUNITY-BASEDSERVICE DELIVERYFORREDUCING POVERTY 6.39 There i s a growing consensus among development practitioners that participatory mechanisms are necessary for improving service delivery in weak institutional environments. In the case o f Guinea-Bissau, given the limited State capacity, the authorities might consider establishing a CSOs/NGOs-managed community development fund inthe context o fthe Government's PRSP process (see Box 6.3 for useful guideline for designing a social fund)."g These funds would support micro projects aimed at improving basic education and health service delivery at the community levels, while buildingon the relative strength o fthe civil society. 6.40 In the case of Guinea-Bissau, using externally funded NGOs collaborating with the Government can improvethe delivery of EFA and UFsocial services. Many national and international NGOs serve an intermediary function through channeling development resources to community-based organizations, providing them with services or technical assistance, or helping to strengthen their capacity. Although NGOs vary in their ability and commitment to work with the poor, inmany cases they have advantages as intermediaries in reaching people-including women, ethnic minorities, and the very poor-who are not represented equitably by formal institutions. For example, NGOs may have more field presence in a given area and employ local people familiar with local conditions. They may have better rapport with the poor and a clearer understanding o f poor people's survival strategies and perceived needs than other kinds o f intermediaries. They may be familiar with low-cost techniques and innovations relevant to poverty alleviation. They also usually have greater flexibility than the staff o f official agencies. Many intermediary NGOs have experience in participatory project design, and skills in participatory research, community mobilization, facilitation techniques, and group dynamics. '17 The Governmentoften rentshouses for the medicalpersonneloperatingoutside Bissau. 118 The reformprogramincludes:(i) rehabilitationof health centers; (ii) buildinginstitutionalcapacity at the centraland regional the levels; (iii) improvinghuman resources management; and (iv) improving the M&E system in the health sector by puttingin place an integrated HealthInformationSystem(SIS). l9 The forthcomingBank-supportedcommunity drivendevelopment(CDD)programandsimilar other externallyfinanced communitydevelopmentprojects maybe used as platformfor this initiative. - 111- 6.41 For the next phases o f the EFA initiative, the CSOs/NGOs-managed community development find can be used to provide cash transfers to parents who would otherwise let their children work (or get married) at an early age instead o f attending school. CSOs and NGOs can also represent an efficient intermediary for providing other school-related services such as delivering school materials, designing and managing retraining programs for school teachers, and raising awareness o f parents about keeping their children (especially girls) inschool. With regardto the UF initiative, CSOs andNGOs can be used as efficient tools for designing and managing retraining and capacity building activities for administrative and medical staff in health centers (procurement, financial accounting, andmanagement o fthe facility-based drugstore). Box 6.3: Designinga Social Fund The following tips may behelpful for designing a social fund: Be clear about the objectives o fthe social fund and the centrality o fparticipation inrealizing objectives. Focus on participatory micro projects, and prioritize selection o f micro projects according to the intensity o f participation. Ask how much local participation there has been in the processes of micro project identification, design, andplanning and ifthe community i s involved inimplementation. Encourage or mandate establishment o f micro project management committees. It may be necessary to require representation o f women and other marginalized groups inthe management committees. Apply participatory data collection methods, such as participatory rural appraisal and beneficiary assessment, to monitor subprojects regularly (assessing 10percent o f subprojects a year may be a good target). Provide for capacity building o f intermediary and community organizations as early as possible. Develop a piloting phase inwhich participatory mechanisms can be tested, the concept o f participation introduced, and actors given time to learn. Design flexible and transparent procurement and disbursement procedures. Deliver what has beenpromised. Avoid delays inprocessing proposals and delivering services. Critically monitor the performance o fthe social fund. Source:Marc and Schmidt (1995). - 112- D. CONCLUSIONAND POLICY CONSIDERATIONS 6.42 As foreshadowed above, while the EFA initiative has contributed to increase enrollments in the primary schools, there remain highrisks about the retention o f pupils in school. Moreover, there are uncertainties about the sustainability o f the EFA because major external supports are ending, while the Government i s still not ready to auto finance the program. The adoption o f the UF system has brought more autonomy and efficiency to health facilities in the sense that each facility collects and manages its revenues in a relatively transparent manner. The resources are used to renew drug inventories and pay incentives to the personnel. Contrary to the EFA, there are less financial concerns than organizational ones. 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Health Plan Manage ;12:S137 - S163. Technical Sustainable Development, Africa Region (AFTSD) and AFC14. Fishery Strategy Sector Note. Working Document. UNESCO (2000) "The Dakar Framework for Action - Education For All: Meeting Our Collective Commitments" the World Education Forum, Dakar, Senegal, 26-28 April 2000. http://unesdoc.unesco.or~irnaaes/OO12/001211/121147e.pdf UNESCO (2002) "Education for All - Is the World on Track? Summary Report" UNESCO Publishing,France. http://unesdoc.unesco.ordimaaes/00 12/001297/129777e,pdf UNESCO (2003) "Gender and Education for All, the Leap to Equality: Summary Report", UNESCO Publishing, France. http://www.unesco.ordeducation/efa report/summary en.pdf - 120- UNESCO (2004) "Education for All, the Quality Imperative: Summary Report" UNESCO Publishing, France. http://unesdoc.unesco.ordinianes/OO13/001373/137334e.pdf W A F . 2002. Plan Cadre des Nations Unies pour l'aide au Dkveloppement de la Guinee-Bissau. UNDP- Africa Future Program (2003), Crafting Africa's Futures: National Long-Term Perspective Studies. Abidjan. http://unpan1.un.ordintradoc/moups/public/documents/IDEPTCTNPANOO2403 .pdf WP/GOVERNO/INEP 2001. Estudo Qualitativo Sobre o Perfil da Pobrezana Guink- Bissau: Persepqaes e Soluqaes Locais. WorldBank(2002), Private Sector Rehabilitation andDevelopment Project. WashingtonDC. http://imaPebank.worldbank.ordservlet/WDSContentSe~er/IW3P/IB/2002/03/22/0000 94946 02031304003783/Rendered/PDF/multiOpage.~df , (2003), National Health Development Project. Project Information Document. WashingtonDC. http://imagebank.worldbank.orp/servlet/U7DSContentServer/IW3P/IB/2004/07/13/0001 04615 20040714143038/Rendered/PDF/ProiectOInfonn1ntO1OAppraisalOStage.pdf (2004), Guinea-Bissau Public ExpenditureReview. WashingtonDC. http://ima~ebank.worldbank.or~/servlet/WDSContentServer/IU73P/IB/2004/03/02/000O 12009 20040302125640/Rendered/PDF/271750GW.~df (2001) Economic Rehabilitation and Recovery Credit (ERRC) Memorandum ofthe President, Report No. P7373. (2004) World Development Indicators (WDI), World Bank. - 121- ANNEXES ANNEX1.VAR MODEL Specification of the M o d e l The fiscal consolidation analysis, carried out in the fourth chapter, is based on a thee- variate VAR model'20.The model seeks to assess the short-term effects o f a reduction o f wage expenditures on growth and Government finance. The VAR estimation is performed using the following three variables: terms o f trade (TOTI), real Government expenditure (GEK), real GDP (GDPK). To better estimate the VAR the first difference o f the logarithm o f the variables are used12'. The proposedVAR does not pretend to capture perfectly all aspects o f Guinea-Bissau's economy. However, it allows assessing the effects o f shocks to Government expenditures and terms o f trade on growth and Government finance. VAR Functions (ct,,are the coefficients o fthe VAR, andDdenotes the first difference operator): After estimating the coefficients o f the VAR, impulse-response coefficients are derived for ten consecutive periods. Given data limitations, the VAR was run on only' 18 observation points covering the period 1987-2004 (16 observations after first differentiation o f the variable). Due to this limitation, the traditional painvise Granger causality tests supporting the proposed Cholesky ordering was not performed. Therefore the analysis mainly relied on the standard methodology proposed by the model (see impulse response fbnctions below). This methodology assumed that TOTI and GEK are the most exogenous variables, while GDPK was found to be the most endogenous variable. Inthe case o f the shock on Government expenditure and terms o f trade the order followed was GEK-GDPK-TOT1 and TOTI-GDPK-GEK, respectively. The proposed orderings indicate that inboth cases the variable that suffers the shock (GEK and TOTI) causes GDPK. The impulse-response coefficients are then normalized as indicated inTables A5 and A 6 to derive the impulse response elasticities o f the cyclical components o f GEK and GDPK to a shock to the cyclical component o f GEK and TOTI. 120The VAR model was initially usedas a module for the growth analysis ofthe 123-PRSPGeneral EquilibriumModel(see Devarajan and Go,2002). First differentiation is usedto address the issue o f stationarity. - 122.- TableA1 1: Impacton GDPK of a shock to the cyclical componentof GEK and TOTI (formulation) 1disturbances to Impulse response * coefficients for GDP growth (normalized). Responsesto changes in Shock )wth of: Shock to GEK (X) - GEK Shock to Period (P') TOTI (K) - 1 P'1** s11 *1 - 2 P'2 , 3 P'3 4 P'4 10 Year (up to the model 1 1 1 1 horizon 2005 2006 2007 2008 Short-term adjustments to baseline GDP growth caused by the shock(s) T2 T3 T4 S21=(XlxP'2)+(KlxP2) s4l=(X4xP'4)+0(4xP4) S22=(X2xP' 1)+(K2xP1) S42+(X4xP'3)+0(4xP3) Tl=S2 1+S22 S43=(X4xP'2)+(K4xP2) S44=(X4xP' 1)+0(4xP 1) S3l=(X3xP'3)+0(3xP3) T4=S4l+S42+S43+S44 S32=(X3xP'2)+(K3xP2) S33=(X3xP' 1)+(K3xP1) T3=S3 1+S32+S33 * ** PandP' are the normalized impulse-response vectors (see Table A5 and A6 below forward). - 123 - -r Table A1 2: Impact on GEK of a shock to the cyclical component of GEK and TOTI Impulse response elasticities of the cyclical components Year 2005 2006 2007 2008 of Gov. exp. to a shock to the cyclical Shock periods Period 1 2 3 4 Year (up to the model horizon) 2005 2006 2007 2008 Short-term adjustments to baseline Gov. exp. growth caused by the shock(s) T'2 T'3 T'4 S'21=(X' lxG'2)+(K'lxG'2) S'41=(X'4xGY4)+(K'4xG'4) S'22=(XY2xG'1)+(K'2xGY1) S'42+(X'4xG'3)+(Ky4xG'3) T'1=S'2 1+S'22 S'43=(X'4xG'2)+(K'4xG'2) S'44=(XY4xG'l)+(K'4xG' 1) S'3 1=(XY3xG'3)+(K'3xG'3) T'4=S'4 1+S'42+S'43+SY44 S'~~=(X'~XG'~)+(K'~XG'~) S'33=(X'3xG'l)+(K'3xG'l) T'3=S'3 l+S'32+S'33 * ** G and G'are the normalizedimpulse-responsevectors (see Table A5 andA6 below). - 124- Resultsofthe Model TableA1 3: VAR ImpulseResponseFunctionfor TOT (effect of one standarddeviationinnovation in TOTI) D(GDPK) D(TOT1) D(GEK) Period (A) (B) (C) 1 0.000000 7.293586 0.000000 2 -3.718151 -0.978541 -2.532837 3 -0,165532 -1.676084 1.973122 4 4.649106 1.748743 -0.854378 5 -2.868643 -1.442438 0.028058 6 -0.998386 0.006189 0.466874 7 2.336172 1.179811 -0.3 19047 8 -1.062426 -0.822889 -0.180593 9 -0.703927 -0.24493 1 0.397265 10 1.281981 0.726088 -0.188677 CholeskyOrdering:D(TOT1) D(GDPK) D(GEK) Table A1 4: VAR Impulse-ResponseFunctionfor GEK (effect of one standard deviationinnovationin GEK) D(GDPK) D(GEK) D(TOT1) Period (A') (B') (C') 1 0.000000 27.75677 0.000000 2 -15.79661 -11.18754 6.694277 3 -17.29761 2.957747 -0.771224 4 9.925773 -4.365820 5.195807 5 2.357527 1.310706 -2.293782 6 -4.494417 1.795006 -2.928903 7 1.937402 -0.754168 3.037846 8 0.841652 -1.148274 0.043779 9 -2.356979 1.334068 -1.896382 10 1.496444 -0.362855 1.407479 CholeskyOrdering:D(GEK) D(GDPK) D(TOT1) - 125 - TableA1 5: NormalizedImpulse-ResponseCoefficientsfor GDP Growth Responsesto changes in Responsesto changes in growth of TOTI growth of GEK Period (P)=(A)/(B) (P')=(A')/(B ') 1 0.000 0.000 2 -0.510 -0.569 3 -0.023 -0.623 4 0.637 0.358 5 -0.393 0.085 6 -0.137 -0.162 7 0.320 0.070 8 -0.146 0.030 9 -0.097 -0.085 10 0.176 0.054 Table A1 6: NormalizedImpulse-ResponseCoefficientsfor ChangesinGovernment Spending Responsesto changes in Responsesto changes in growth of TOTI growth of GEK Period (G)=(C)/(B) (G')=(B ')/(B') 1 0.000 1.000 2 0.000 -0.403 3 -0.347 0.107 4 -0.221 -0.157 5 0.271 0.047 6 -0.255 0.065 7 -0.117 -0.027 8 -0.188 -0.041 9 0.004 0.048 10 -0.180 -0.013 The normalized impulse-response coefficients inTables A5 and A6 are derived from the impulse-response coefficients of Tables A13 and A14. The Underlyingassumptions o fthe model are that Government revenue may increase due to improved efficiency in tax collection; however, the authorities would not take any discretionary measures to increase tax rates in the short-term (empirical evidence suggests that fiscal consolidation policies targeting expenditure contraction are more efficient than those aiming at increasing revenues). As Guinea-Bissau's economy is highlydependant onthe export o fraw cashew nuts, the model allows a constant 1percent annual depreciation o f the terms o ftrade over the simulation horizon - 126- 0 8 0 8 1 I ANNEX2. PUBLIC SECTOR DOWNSIZING SEPARATION PACKAGES AND The following discussion i s derived from Chong and Rama (2001). The paper uses two approaches (direct and indirect) to estimate the total loss. The latter i s used to determine the "right" amount o f compensation for redundant civil servants. The analysis is based on the 1991ILAPsurvey data. The direct approach measures the total loss that the separated public sector worker would experience based on the present values o f the earnings loss the worker would experience inall the years since displacement untilretirement, andthe income loss over all the years between retirement and death.'22 The indirect approach, in turn, measures the total loss based on the value o f the predicted change in earnings. Put differently, public sector employees would value the benefits associated with their jobs, including old-age income security, at roughly one-fifth o f their cash earnings. The direct approach suggests that some government employees would experience a very small loss in the event o f separation. According to the indirect approach, however, roughly 85 percent o f the employees would face a total loss inexcess o f CFAF400,OOO. Based on these two approaches, four alternative packages identified with the letters A to D have been estimated. Package A is a lump sum. Package B is a multiple o f the employee's salary in government. In package C, the amount o f compensation i s set in months o f salary per year o f service. Package D, on the other hand, is based on an analysis o f the distribution o f predicted losses in benefits in earnings from separation. These losses, unlike in the other packages, are nonlinear because they involve the individual characteristics o fthe employees, as well as the characteristics o f their jobs. The performance o f the four separation packages can be evaluated on two grounds: cost and fairness. For each government employee, the separation package can be compared to the expected loss in earnings and benefits. Ifthe package exceeds the expected loss, it i s assumed that the employee would be satisfied. It follows that each separation package i s associated with a satisfaction rate, ranging from 0 to 100 percent. The cost and fairness indicators were calculated for a pre-specified satisfaction rate, for instance, 60 percent. Cost was measured as the average package o f those employees who would be satisfiedby the amount o f Compensation received. Fairness was measured as the correlation- coefficient (not shown in Table A21) between the compensation and the loss in earnings andbenefits, for those employees who would be satisfied. Implicitly, both indicators used voluntary separations as a benchmark, because the fraction o f employees satisfied should be the same as the fraction o f employees who would take the package and leave the public sector, ifthey had a choice. In practice, every "reasonable" package will overcompensate some employees and undercompensate others. Only exceptionally will compensation match exactly the predicted loss in earnings and benefits. Therefore, the employees who are satisfied with the package are most likely overcompensated. It follows that the average cost o f a 122 It i s assumed that no loss in old-age income if the worker gets a formal sector job after separation. - 129 - package i s higher than the average loss in earnings and benefits o f those employees who are satisfied with it. In terms o f the voluntary separation benchmark, mistakes in the direction o f overcompensation materialize, whereas mistakes in the direction o f undercompensation have no practical implication. Overcompensation also implies that the fairness o f a separation package can be low. If the package received by all satisfied employees was equal to their predicted loss (or a multiple o f it), the fairness coefficient would be equal to one. In practice, however, some employees get a windfall whereas others are compensated "just right," so that the fairness coefficient can be close to zero, or even negative. Table A21 reports the cost and fairness o f each o f the four packages, for nine satisfaction rates ranging from 10 to 90 percent. The zero satisfaction rate is uninteresting, because it would require no compensation. At the other end, the 100 percent satisfaction rate can only be reached at unreasonably high separation costs, because the package has to be generous enough to match the highest loss in earnings and benefits throughout the sample, and this is often an outlier. The only difference between the direct and indirect approaches concerns the loss indicator used. The figures inbold in the table indicate the cheapest package, and the fairest package, for each satisfaction rate. In the case o f Guinea-Bissau, packages A and B are quite similar. This is because o f the very small variation in earnings across employees in categories "0" to "Z". If all workers have roughly the same salary in government, a package defined as a multiple o f this salary i s not too different from a lump-sumpayment. Whereas salaries in government are roughly the same for all employees in categories "0" to "z", losses from separation are not. As the correlation coefficient between a constant and a variable is zero, packages A and B perform very poorly in terms o f fairness. However, they are cost-effective at low satisfaction rates. Ifdownsizing can be carried out without hlly compensating more than one-third o f government employees, "flat" packages o f this sort could keep downsizing expenditures under control. At the other end, "tailored" compensation, as inpackage D, i s the most cost-effective alternative if satisfaction rates need to be high.Packages C and D have a similar performance at low satisfaction rates. The average cost per separated worker i s slightly higher for package C, but the fairness coefficient can be higher as well. In order to attain high satisfaction rates, however, the number of months of salary per year o f service required by package C becomes too high.At a 70 percent satisfaction rate, package C costs roughly twice as much as package D, but the latter does much better in terms o f fairness. The gap between the two packages becomes dramatic at very high- satisfaction rates. In fact, "tailored" compensation dominates all the alternatives, both on grounds o f cost and fairness, ifa majority o f the workers need to be "bought off.." The compensation formula that the government o f Guinea-Bissau was planningto use for its public sector downsizing operation, which is a special case o f package Cyturns out to be quite onerous. This formula would lead to a satisfaction rate o f 78 percent, based on the direct approach, or 73 percent, based on the indirect approach. The average cost per satisfied worker would be roughly CFAF 2 million, and the fairness coefficient would be. around 45 percent. Better outcomes could be attained spending less than half. A lump sum o f less than CFAF 1million would achieve the same satisfaction rate o f the formula considered in Guinea-Bissau. A similar result, at a similar cost, would be obtained - 130 - offering less than seven years o f salary as compensation. Package D would be even less expensive, as it would cost roughly CFAF 880,000 per satisfied worker. The fairness coefficient would, inthis case, be close to 70 percent. Table A2 1: Averagecompensationper Separatedemployee (thousandsof CFAF) 11- Direct Approach Indirect Approach Percentage of Alternative packages Alternativepackages employee satisfied A B C D A B C D 10 176.0 138.8 227.1 232.7 358.0 361.O 441.0 412.7 20 300.5 300.4 451.5 397.8 437.6 437.6 636.0 556.7 30 468.8 464.3 660.6 465.2 513.0 514.0 813.5 620.6 40 632.5 633.9 818.8 567.2 624.2 618.7 989.7 650.4 50 722.0 724.3 964.3 667.0 760.0 762.4 1,188.3 705.5 60 818.0 816.2 1,157.3 736.7 843.0 841.6 1,446.7 783.0 70 939.5 944.2 1,464.0 809.1 932.0 930.6 1,862.8 861.0 80 1,007.4 1,014.4 2,143.6 871.8 1,065.5 1,064.9 2,759.8 940.1 90 1,106.3 1,107.2 3,642.0 m:Chongand 927.3 1,193.0 1,194.8 4,806.3 1,052.8 Ram(2001),Tables5 and6. 1/PackageA is a variable lumpsum; packageB is a variablemultiple of the salary in government; packageC is a variablemultiple of the salary multiplied by the number of years of service; package D is a variable lump sum, plus half a month of salary per year of service, minus CFAF 50,000 per year of completed education, plus CFAF 60,000 for female employees, plus CFAF 150,000 for employees who work out of Bissau.The variable component of each package is increaseduntil the percentage of satisfied employees indicated inthe first column of the table is reached. The figures in bold indicate the cheapestand fairest package for each satisfaction rate. Boubacar-SidBarry C:\Documentsand Settings\wb224607WyDocuments\GNBWOVASS\IPSAUlain Report\Graycover\IPSA GrayCover Volume 1.doc 08/01/2006 11:36:00AM - 131-