The World Bank

Document of The World Bank

Public Disclosure Authorized Report No: ICR00002005

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-35670, IDA-3567A)

Public Disclosure Authorized

ON A

CREDIT

IN THE AMOUNT OF SDR 19 MILLION (US$23.8 MILLION EQUIVALENT

TO THE

REPUBLIC OF MADAGASCAR

Public Disclosure Authorized FOR THE

SECOND PRIVATE SECTOR DEVELOPMENT PROJECT

June 30, 2011

Public Disclosure Authorized Finance and Private Sector Development AFCS4 Africa Region CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2010

Currency Unit = Malagasy Ariary (MGA) US$1.00 = MGA 2,174

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ACM Aviation Civile de Madagascar / Civil Aviation Authority ADEMA Aéroports de Madagascar / Madagascar Airports ADF Airport Development Fund AGOA African Growth and Opportunity Act ATI African Trading Insurance BPI Business Partners International CAPE Comité d‘Appui au Pilotage de la relance de l‘Entreprise / Support Committee for Enterprise Relaunch Pilot CAS Country Assistance Strategy CFEC Center for Facilitation of Enterprise Creation CP Comité de Privatisation / Interministerial Privatization Committee CRC Comité de Réflexion pour la Compétitivité / Competitiveness Review Committee DCA Development Credit Agreement EDBM Economic Development Board of Madagascar EMP Environmental Management Plan EPZ Export Processing Zone FASP Fonds d'Appui au Secteur Privé / Private Sector Support Fund FDI Foreign Direct Investment FIAS Foreign Investment Advisory Services FMI Financial Management Initiative FSADR Fond Social d'Appui au Développement Régional / Social and Regional Development Fund GDP Gross Domestic Product GOTICOM Groupement des Opérateurs des Technologies de l'Information et Communication / Private Sector Association of ICT Operations GOM Government of Madagascar GUIDE Guichet Unique des Investissements et du Développement des Entreprises / One-Stop Shop for Business Development and Investment Promotion HASYMA Hasy Malagasy / Cotton Company HIPC Heavily Indebted Poor Country ICB International Competitive Bidding

ICR Implementation Completion and Results ICT Information and Communication Technology IDA International Development Agency IFC International Finance Corporation IMF International Monetary Fund IMS Information Management System IPP Independent Power Producer I-PRSP Interim Poverty Reduction Strategy Paper IVATO International Airport of Antananarivo JIRAMA Jiro Sy Rano Malagasy / Power and Water Company KPI Key Project Indicators M&E Monitoring and Evaluation MAP Madagascar Action Plan MDSPP Ministère du Développement du Secteur Privé et de la Privatisation / Ministry of Private Sector Development and Privatization MSE Micro and Small Enterprises NBC National Competitive Bidding NPV Net Present Value OECD Organisation for Economic Cooperation and Development ONE Office National de 1'Environnement / National Environment Agency OMERT Office Malgache pour l'Etude et la Régulation des Télécommunications / Telecoms Regulator OMH Office Malgache des Hydrocarbures / Petroleum Regulator OPCS Operations Policy and Country Services PAD Project Appraisal Document PASERP Programme d'Appui Social et Economique pour la Réinsertion Professionnelle / Retraining Program PATESP Private Sector and Capacity Building Project PCU Program Coordination Unit PDO Project Development Objective PIU Project Implementation Unit PMR Project Monitoring Reports PNSP Programme National d'Appui au Secteur Privé / Private Sector Support National Program PPP Public Private Partnership or Purchasing Power Parity PSD Private Sector Development PSDP2 Second Private Sector Development Project PTF / FPP Privatization Trust Fund / Fonds de Portage et de Privatisation SADC Southern Africa Development Community SIRAMA Siramamy Malagasy / Sugar Company SME Small and Medium-sized Enterprises SODIP Société pour le Développement Industriel des Plantes de Madagascar / Madagascar Company for the Industrial Development of Plants SOE State-Owned Enterprise SOLIMA Solitany Malagasy / National Oil company of Madagascar

STP Secrétariat Technique à la Privatisation / Privatization Secretariat TELMA Telecom Malagasy TOR Terms of Reference UCP Unité de Coordination du Projet / Project Implementation Unit USF Universal Service Fund VOIP Voice over Internet Protocol

Vice President: Obiageli Katryn Ezekewesili Country Director: Haleh Bridi Sector Manager: Michael J. Fuchs Task Team Leader: Josiane V. Raveloarison ICR Team Leader: Michael O. Engman

MADAGASCAR SECOND PRIVATE SECTOR DEVELOPMENT PROJECT

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

Contents 1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 9 3. Assessment of Outcomes ...... 17 4. Assessment of Risk to Development Outcome ...... 23 5. Assessment of Bank and Borrower Performance ...... 24 6. Lessons Learned...... 27 Annex 1. Project Costs and Financing ...... 30 Annex 2. Outcome by Component...... 32 Annex 3. Economic and Financial Analysis ...... 58 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 61 Annex 5. Beneficiary Survey Results ...... 64 Annex 6. Privatization transactions supported by the Project in 2002-2010 ...... 66 Annex 7. Summary of Borrower‘s ICR and/or Comments on Draft ICR ...... 69 Annex 8. Comments of Co-financiers and Other Partners/Stakeholders ...... 78 Annex 9. List of Supporting Documents ...... 79 Annex 10. Map of Madagascar ...... 80

A. Basic Information

MG - Prviate Sector Country: Madagascar Project Name: Development II Project ID: P072160 L/C/TF Number(s): IDA-35670,IDA-3567A ICR Date: 06/30/2011 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL Borrower: MADAGASCAR Original Total XDR 19.0M Disbursed Amount: XDR 15.7M Commitment: Revised Amount: XDR 15.7M Environmental Category: B Implementing Agencies: Secretariat Technique a la Privatisation (STP) Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 08/07/2000 Effectiveness: 11/12/2002 11/12/2002 11/12/2002 03/06/2003 04/28/2005 Appraisal: 01/12/2001 Restructuring(s): 06/14/2006 12/21/2007 05/03/2010 Approval: 08/28/2001 Mid-term Review: 07/18/2005 07/25/2005 Closing: 06/30/2006 12/31/2010

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Unsatisfactory Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Moderately Satisfactory Government: Unsatisfactory Moderately Implementing Quality of Supervision: Moderately Satisfactory Unsatisfactory Agency/Agencies:

Overall Bank Moderately Overall Borrower Moderately Performance: Unsatisfactory Performance: Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any time Quality of Supervision Yes None (Yes/No): (QSA): DO rating before Moderately

Closing/Inactive status: Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 95 67 General finance sector 2 5 General industry and trade sector 2 26 Micro- and SME finance 1 2

Theme Code (as % of total Bank financing) Regulation and competition policy 40 17 Small and medium enterprise support 20 33 State enterprise/bank restructuring and privatization 40 50

E. Bank Staff Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo Country Director: Haleh Z. Bridi Hafez M. H. Ghanem Sector Manager: Michael J. Fuchs Demba Ba Project Team Leader: Josiane V. Raveloarison Marie-Ange Saraka-Yao ICR Team Leader: Michael Olavi Engman ICR Primary Author: Michael Olavi Engman

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the project is to assist the Borrower to improve access, reliability and affordability of key utilities, through completion of the divestiture program of key state-owned enterprises, and capacity building initiatives to strengthen the capacity of autonomous regulators and privatization agencies, and facilitate entry of new operators in the deregulated sectors. (DCA). To enable the Government of Madagascar (GOM) to improve access, reliability, and affordability of key utilities, including transport (PAD).

Revised Project Development Objectives (as approved by original approving authority) The objective of the Project is to assist the Borrower to improve access, reliability and affordability of key utilities, through completion of the divestiture program of key state-owned enterprises, and capacity building initiatives to strengthen the capacity of autonomous regulators and privatization agencies, and facilitate entry of new operators in the deregulated sectors and increase the competitiveness of Malagasy companies. (as approved by the Board in November 2002)

(a) PDO Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Private investment in the targeted sectors increased by US$100 million annually from Indicator 1 : 2004 to 2007 Private investment in telecoms increased from $13 million in 2004 to $120 million in 2007. Data for Value Annual increase by private investment in quantitative or NA $100 million the petroleum sector Qualitative) were not available but anecdotal evidence indicates that the target was not reached. Date achieved 08/01/2001 12/31/2007 12/31/2010 Comments Political uncertainty made investment a poor indicator of success. Roughly one-third of (incl. % the target was achieved in telecoms. Team monitored FDI/GDP but there was achievement) insufficient causality between this measure and project for it to be considered in ICR. Indicator 2 : Improve access to reliable, affordable, and quality services for key utilities # of telephone lines (mobile # of telephone lines # of telephone lines Value + fixed) per 100 inhabitants: (mobile + fixed) per per 100 inhabitants: quantitative or 0.8 percent in 2000. 100 inhabitants: 1.5 2.3 percent in 2004, Qualitative) # of Internet users 10,000 in percent in 2004 26.2 percent in 2008.

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years 2000 # of Internet users # of internet users Telecom services rates as 60,000 in 2005 100,000 in 2005 and for 2000 Telecom services 316,000 in 2008. rates reduced by Price of a 3-min local 2006 in line with the call in 2006 average rate of (Mada/SSA): telecom services of $045/0.68 for mobile other countries in and $0.18/0.09 for region fixed, down from $3.19/ Date achieved 08/01/2001 12/31/2006 12/31/2009 12/31/2010 Comments Access: targets exceeded - 100%. (incl. % Affordability: achieved for mobile but nor fixed services. achievement) Strengthen the capacity of autonomous regulators and privatization agencies and Indicator 3 : facilitate entry of new operators The STP was strengthened Capacity building of Insufficient capacity of significantly during Value Privatization Privatization Secretariat the course of the quantitative or Secretariat (STP) (STP) and Telecom project and became Qualitative) and Telecom regulator (OMERT) the de facto PIU in regulator (OMERT) 2006. OMERT received training. Date achieved 08/01/2001 12/31/2010 Comments STP was dismantled upon project closing. Industry insiders and civil servants argue that (incl. % the technical capacity of OMERT is rather good but it lacks meaningful autonomy. achievement) Indicator 4 : Complete divestiture program of key state-owned enterprises TELMA and HASYMA privatized in 2004. JIRAMA The Privatize TELMA partly under private Government by 2002; management Complete/Implement made several Value SIRAMA by 2002; contract. SIRAMA: divestiture strategy for changes to the quantitative or International Airport no TELMA, HASYMA, list, including Qualitative) of Antananarivo launch of JIRAMA and SIRAMA dropping and (IVATO) by 2003; privatization adding HASYMA by 2003 process; 15 public companies. enterprises liquidated and 12 partly liquidated. Date achieved 08/01/2001 12/31/2010 Comments The work of preparing and executing this process was satisfactory but the lack of (incl. % commitment by the Government made it impossible to complete the agenda.

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years achievement) Significant achievements still made. Indicator 5 : Increase competitiveness of Malagasy companies There is little evidence that the activities helped increase the competitiveness of Number of None (Total value of Malagasy companies. investments in Value investments. Job EDBM helped to SMEs: Year 1 quantitative or created. Job sustained significantly reduce (2007): 15 Year 2: Qualitative) Number of MSMEs assisted the transaction costs 18; Year 3: 18 Year - were mentioned) of starting a business 4 24 and Year 5: 27) and obtaining permits. It is impossible to establish any causal link Date achieved 11/12/2002 12/31/2010 Comments The indicators for this sub-section of the PDO were ill-defined and causality unclear. (incl. % Data were often not available or collected. achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Carry out environmental audit of petroleum sites in order to assess environmental Indicator 1 : impact, identify risk sharing arrangements, and propose a remedial action plan and risk mitigation measures Target partly achieved. 2005: Core team of trained environmental audit qualified individuals for phase I delivered. in place at OMH 2006: committee Value (petroleum decides to develop an (quantitative No baseline audit available regulator). Establish action plan to protect or Qualitative) procedures to and minimize risk. monitor 2007: 79% of service environmental stations cleaned up. hazards 2008: Galana Refinery terminal is renovated. Date achieved 08/01/2001 12/31/2004 12/31/2010

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Comments The output targets were largely met but the Government did not adequately address all (incl. % the recommendations of the audit. achievement) Indicator 2 : Reduce the steps to create a firm (60 days and 10 steps at mid term review) The project was catalytic in achieving these results during Ease of doing the first years when it Value business ranking in established the one 157 days and 17 steps in (quantitative 2010 report is better stop shop (GUIDE) 2002 or Qualitative) than 144th (in DB that was later report 2009) incorporated into EDBM, which reformed the process significantly. Date achieved 12/01/2003 12/31/2009 12/31/2010 Comments (incl. % achievement) Indicator 3 : Reduce the steps to create a firm (60 days and 10 steps at mid term review) Ease of doing Value business ranking in 157 days and 17 steps in (quantitative 2010 report is better 2002 or Qualitative) than 144th (in DB report 2009) Date achieved 12/01/2003 12/31/2009 12/31/2010 Comments (incl. % Sources: Doing Business report and EDBM achievement) Facilitate growth exports through setting up EPZ. Implementation of the pilot zone in Indicator 4 : Tsarakofafa - Tamatave Off-site infrastructure Partnership Value investments are completed: agreement between (quantitative electricity, water and GoM and developer or Qualitative) telecommunication network concluded Date achieved 08/01/2005 12/31/2009 12/31/2010 Comments (incl. % Sources: Ministry of Economy and Industry. FILATEX achievement) Indicator 5 : Encourage participation of nationals in the privatization process a) 10% of shares of This activity did Value the targeted private neither achieve (quantitative Shares not shared. enterprises have significant results not or Qualitative) been transferred to its targets the Privatization

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Trust Fund (PTF) at the closing of each transaction; b) PTF has offered these shares for sale to local small investors. Date achieved 08/01/2001 12/31/2010 Comments Privatization Trust Fund was created, and staffed with a Fund Manager. Although (incl. % GOM took years to make progress on this activity, since its creation a few Government achievement) shares in privatized companies have been transferred to PTF. Indicator 6 : Increase ROI of the targeted companies: ADEMA. HASYMA, SIRAMA and TELMA Unclear. ISR: HASYMA ROI: - 0.2% in 2004; - 55.5% in 2005; - 3426% in 2006; 1.3% Value in 2007 and -31.7% (quantitative None None in June 2008. or Qualitative) TELMA ROI: - 84.2% in 2004; 10.5% in 2005; 2.8% in 2006; 1.2% in 2007; -5.4% in 2008 and 0.6% in 2009. Date achieved 12/31/2010 Comments (incl. % This indicator was insufficiently estimated and monitored achievement)

G. Ratings of Project Performance in ISRs

Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 01/29/2002 Satisfactory Satisfactory 0.00 2 05/20/2002 Satisfactory Unsatisfactory 0.00 3 12/19/2002 Unsatisfactory Unsatisfactory 0.00 4 05/28/2003 Satisfactory Satisfactory 0.75 5 11/25/2003 Satisfactory Unsatisfactory 3.00 6 05/05/2004 Satisfactory Satisfactory 6.12 7 06/17/2004 Satisfactory Satisfactory 6.12 8 06/18/2004 Satisfactory Satisfactory 6.12 9 12/16/2004 Satisfactory Satisfactory 9.07 10 06/23/2005 Satisfactory Satisfactory 11.98 11 12/28/2005 Satisfactory Satisfactory 14.41 12 02/04/2006 Satisfactory Satisfactory 15.14 13 07/18/2006 Satisfactory Satisfactory 16.79 14 12/21/2006 Satisfactory Satisfactory 20.44 15 06/28/2007 Satisfactory Satisfactory 22.27 16 11/15/2007 Satisfactory Satisfactory 22.20 17 12/19/2007 Satisfactory Satisfactory 22.20 18 05/30/2008 Satisfactory Satisfactory 23.24 19 12/23/2008 Satisfactory Satisfactory 24.12 20 05/15/2009 Satisfactory Satisfactory 24.47 21 12/23/2009 Moderately Satisfactory Moderately Satisfactory 24.47 22 06/30/2010 Moderately Satisfactory Moderately Satisfactory 24.47 23 01/11/2011 Moderately Unsatisfactory Moderately Unsatisfactory 24.84

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Restructuring Disbursed at Reason for Restructuring & Key Approved PDO Date(s) Restructuring Changes Made Change DO IP in USD millions 11/12/2002 Y S U 0.00 Second order restructuring for amending project description, allocation of funds to credit 03/06/2003 N U U 0.75 components, and the financial and institutional arrangements governing project implementation Second order restructuring for utilizing project savings to fund a technical assistance facility targeting local SMEs, to finance 04/28/2005 N S S 11.69 an insurance facility component of the Project, following Madagascar# s admission as member of ATI, and amending various procurement thresholds Second order restructuring for extending the closing date of the 06/14/2006 S S 16.79 Project to December 31, 2007, and reallocating some project funds Second order restructuring for extending the closing date of the 12/21/2007 N S S 22.20 Project to December 31, 2009, and reallocating project funds Second order restructuring for extending the closing date of the 05/03/2010 MS MS 24.47 Project to December 31, 2010 within the framework of OP 7.30 Dealing with de facto government.

If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Unsatisfactory Against Formally Revised PDO/Targets Moderately Unsatisfactory Overall (weighted) rating Moderately Unsatisfactory

I. Disbursement Profile

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1. Country context: Madagascar was one of the poorest countries in the world at the turn of the century. In 2001, the country‘s gross domestic product (GDP) per capita at purchasing power parity (PPP) was US$848; or 59 percent of the average value in Sub-Saharan Africa.1 Following Board approval of the Second Private Sector Development project (PSDP2) (or, the Project), on August 28, 2001, the economy has mostly expanded, partly as a result of increased exports of agricultural and garments products, debt service relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, and two major investments in the mining industry.2 In the past decade, the Malagasy economy stood up reasonably well to environmental and economic shocks, such as devastating cyclones and deteriorating terms of trade, as well as currency volatility. In 2002-2008, the country embarked on an ambitious reform path that brought improvements in social, economic and governance indicators. However, the Malagasy economy contracted in 2002 and 2009 due to political turmoil.

2. Rationale for Bank assistance: The Project‘s interventions aimed to lock in earlier achievements and to strengthen the reform process embarked upon by the country in the second half of the 1990s. An earlier reform program, supported by the (first) Private Sector Development and Capacity Building Project (PATESP, CR.2956, 1997-2002), encouraged private sector development through changes in the legal business environment. Markets were liberalized and some 50 companies privatized, including eight of the largest state-owned enterprises (SOEs) and two financial institutions, and the Government of Madagascar (GOM) established regulatory agencies before the transactions of the privatization process were concluded. Hence, the Project was prepared and designed in a positive environment categorized by expectations that the Second Private Sector Development Project would be able to capitalize on the momentum enjoyed by the Private Sector Development and Capacity Building Project.

3. The Project‘s interventions were designed to support the objectives of the Country Assistance Strategy (CAS) (16249-MAG), of January 17, 1997, which aimed to reduce poverty through high growth and ―quantum leaps in investment‖. According to the Interim Poverty Reduction Strategy Paper (I-PRSP), of November 28, 2000, economic performance was expected to improve by completing the GOM‘s ongoing financial and economic reform program. It included the implementation of a new legal framework that would promote transparent business rules, private investment, and local enterprise development in sectors with high growth potential such as tourism, mining, manufacturing, telecommunications and seafood. It also covered the finalization of the privatization program and the expansion of infrastructure. The Project supported these goals and aimed to improve efficiency and expansion of key infrastructure services that were identified in the I-PRSP as the main constraints to potential sources of growth.

1 World Bank (2011a). 2 IMF (2000), IMF (2004).

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 4. According to the Project Appraisal Document (PAD), the principal objective of the project was ―to enable the Government of Madagascar to improve access, reliability, and affordability of key utilities, including transport‖. The Development Credit Agreement (DCA) dated October 5, 2001, was somewhat more comprehensive in definition and stated that the PDO was ―to assist the Borrower to improve access, reliability and affordability of key utilities, through completion of the divestiture program of key state-owned enterprises, and capacity building initiatives to strengthen the capacity of autonomous regulators and privatization agencies, and facilitate entry of new operators in the deregulated sectors.‖

5. The Project was designed to achieve two specific goals. The first goal was to complete the divestiture of four key state-owned enterprises (SOEs) and 30 small and medium-sized enterprises (SMEs) as well as to liberalize the agro-industry, air transport, energy, finance, and telecommunications markets. This was meant to improve efficiency of the companies and create opportunities for new private entry and investment. The second goal was to strengthen the capacity of GOM to regulate privatized sectors. See Table 1 for the original key indicators to assess the achievement of the development objectives.

1.3 Revised PDO and Key Outcome Indicators 6. Shortly after the Project was approved by the Board of Directors on August 28, 2001, a lengthy political crisis erupted that paralyzed the public sector, plunged the economy into decline, and delayed Project effectiveness. Following the installation of a new Government and upon its request to the World Bank, on October 22, 2002, the President of the World Bank called for the Board of Executive Directors to approve several proposed changes to the World Bank portfolio in the post-conflict environment, including the DCA of the Project, through the approval of the Regional Vice President.3

7. The Project‘s DCA was thus amended on November 12, 2002 to better reflect the priorities of the new Government. The amendment led to Project effectiveness and was the actual starting point for the Project as no disbursements had been made prior to the restructuring. The Project Development Objective (PDO) was amended with a slight addition to the original PDO with the final words in bold: ―to assist the Borrower to improve access, reliability and affordability of key utilities, through completion of the divestiture program of key state-owned enterprises, and capacity building initiatives to strengthen the capacity of autonomous regulators and privatization agencies, and facilitate entry of new operators in the deregulated sectors and increase the competitiveness of Malagasy companies‖. In addition, the outcome indicator on ‗transport‘ was dropped from the Project at the restructuring mission and this change was thereafter reflected in the second amendment to the DCA.

8. On May 6, 2003, the Country Director and the Government agreed to amend the DCA a second time with modifications to introduce miscellaneous changes to the project description, the allocation of funds to credit components, and financial and institutional arrangements governing project implementation. These amendments were not resubmitted to the Board but they followed

3 World Bank (2002).

the requests outlined by the World Bank President and that had been submitted to the Board of Directors in the fall of 2002.

Table 1. Key performance indicators Outcome indicators  Private investment in the targeted sectors increased by US$100 million annually from 2004 to 2007 Telecommunications  The number of telephone lines (fixed line + mobile) per 100 inhabitants (penetration rate) increased from 0.8 percent in 2000 to 1.5 percent in 2004;  Internet users increased from 10,000 in 2000 to 40,000 in 2004, and 60,000 in 2005;  Telecom services rates will be reduced by end 2006 in line with the average rate of telecom services of countries in the region facing a level of competition in their telecom sector similar to that of Madagascar Transport  Cost of international and regional airline tickets reduced in line with published economy and charter fares for competing destinations (such as Reunion) by 2004;  Ground handling fees will be reduced by 8 to 10% by 2004 Output Indicators Regulatory framework  The regulatory framework for the insurance sector comprising of application decrees mentioned in the insurance code has been adopted in 2003 Capacity Building  The regulatory agencies responsible for civil aviation, petroleum, and telecommunications are fully operational by December 2003 and have established monitoring procedures to ensure compliance with technical and economic regulations and national environmental norms and World Bank Group (WBG) policies;  The council of insurance and the authority in charge of oversight and monitoring of the insurance sector are fully operational in 2004, have established yearly procedures to ensure compliance of insurance institutions to international standards and are disclosing a yearly statistics report on the sector's activities by Dec. 2004;  The Center for Facilitation of Enterprise Creation (CFEC) is adequately funded, staffed and fully operational by December 2003 Privatization Privatization transactions are completed in the time-frame below, in compliance with transparency and competition rules acceptable to the WBG:  Telecoms Malagasy (TELMA) completed by 2002;  Sugar Company (SIRAMA) completed by 2002;  International Airport of Antananarivo (IVATO) completed by 2003;  Cotton Company (HASYMA) completed by 2003;  Ten percent of shares of the targeted private enterprises have been transferred to the Privatization  Trust Fund (PTF) at the closing of each transaction; and  PTF has offered these shares for sale to local small investors New PSD activities  New strategies in priority sectors identified by Government adopted by 2003;  The Center for the promotion of micro and small enterprises (OMPE) is fully operational in 2003, adequately staffed and has established adequate procedures to support MSEs;  Product development and training services provided to ten local start-ups by 2005

1.4 Main Beneficiaries 9. The PAD did not identify specific beneficiaries. The rationale was that the Project would benefit the overall economy through increased competition, adoption of productivity enhancing initiatives by the private sector, and investments boosting access and lowering prices of utility services. The ceding of control of loss-making companies to the private sector was expected to generate cost savings that could be reinvested to expand basic services. For the local private sector, benefits were expected to be significant as the reforms would facilitate the development of local entrepreneurship. By targeting backbone services, such as transport and telecoms, the PAD explicitly assumed that the benefits of improved access and competitive rates would spill over into other sectors, thereby giving rise to a significant multiplier effect. Simplified procedures for enterprise registration, and easier and cheaper access to key business services, would benefit entrepreneurship.

1.5 Original Components 10. The PAD outlined three broad project components: (i) regulatory capacity building; (ii) transaction implementation; and (iii) ‗new Private Sector Development (PSD) activities‘. These project components are summarized below with a brief assessment of the causal linkages between component activities and PDO outcomes.

(i) Regulatory Capacity Building 11. The first component would strengthen the regulatory capacity of autonomous sector regulators for air transport, petroleum and telecoms, and in particular: (i) improve their efficiency in undertaking technical and economic regulation; and (ii) monitor environmental hazards in compliance with national legislation, sector standards and World Bank Group (WBG) policies. In addition, it would build in-house capacity of the Center for Facilitation of Enterprise Creation (CFEC), and strengthen the insurance sector.

12. From a causality perspective, strengthening regulatory capacity to enhance competition, improve policy and monitor markets was an essential requirement in order to achieve the PDOs of enhancing access, reliability and affordability of targeted utility sectors. It was also a key pre- condition for a successful outcome from the privatization and reform program of public enterprises. The CFEC was a worthwhile initiative to support market entry in the newly liberalized and other sectors.

(ii) Transaction Implementation 13. The second component would provide support for institutional capacity building, a local ownership development scheme, and privatization implementation. First, it would strengthen the Privatization Secretariat (STP) through technical assistance, including for environmental screening and auditing, retraining through the Programme d'Appui Social et Economique pour la Réinsertion Professionnelle (PASERP), and through arbitration. Second, it would help divest of Privatization Trust Fund (PTF) shares to local investors, provide financial advisory services to PTF to implement regulations and safeguards, hire a private fund manager to oversee and manage the fund, create a registry for shares, explore the feasibility of developing mutual funds, and launch a communications campaign. Third, it would support completion of the remaining

4 key companies and small and medium-size enterprises (SMEs) of the ongoing privatization program (telecoms, the main airports, sugar and cotton). It would also provide financing to assist in the structuring and closing of the transactions, including legal advisory support to resolve land and title issues pertaining to ownership transfers, and carry out environmental audits of select companies.

14. The successful implementation of the activities in this component was essential in boosting competition, freeing up GOM time and resources wasted on mostly unproductive and/or failing enterprises to be invested elsewhere, and in allowing for the restructuring of these businesses. By attacking some of the vested interests, including between civil servants, politicians and executives, and imperfect markets, the proposed activities were likely to reduce inefficiencies and waste, boost competition, provide a fairer and more conducive investment climate, and strengthen the Malagasy economy in the long-term.

(iii) Developing new PSD activities 15. The third and final component would: (i) provide support to the operational set up and efficient development of a center (OMPE) created to coordinate activities of micro and small enterprises (MSE); and (ii) develop strategies to support the implementation of activities identified in the I-PRSP. In addition, it would provide advisory services to develop a strategy to promote MSEs and use OMPE to allow MSEs to access market information and technology. It was also expected to help jump-start the development of priority sectors identified by GOM using pilot projects, including by assisting GOM in developing new PSD strategies, and provide assistance to new local business start-ups.

16. The causal link between the activities in this third component and in facilitating entry of new operators in the deregulated sectors—the relevant part of the PDO—was clear. Yet the anticipated reduction of transaction and information costs would have benefited in particular MSEs. The large investments and expertise generally required to enter utility markets indicate that the activities in component 3 were insufficient to have any significant contribution to achieving the PDO.

17. In summary, successful implementation of the activities would have improved access and reliability to services critical in achieving higher growth (CAS objective).4 It is also highly likely that they would have helped reduce poverty through private sector-led growth (CAS goal) in the long-term. The link to affordability was not obvious, however. Effective regulation—a high priority in the PAD—would help alleviate some of the potentially negative effects and so would the training program aimed at facilitating the transfer of retrenched workers into new productive activities. The activities and selected outputs are therefore likely to have had a positive impact on achieving some of the PDO outcomes, as analyzed in detail below. Causality for the interventions of the transport component and its associated outcome indicators were not convincing given the limited investment and technical assistance interventions as well as ambitious price reduction targets (see Table 1 for indicators and Annex 1 for budget allocation). This component was cancelled before implementation begun; thus it is not explored in this report.

4 World Bank (2003).

1.6 Revised Components 18. The three headline components remained unchanged during the course of the Project. However, modifications were made to sub-components: some were dropped and others added as the management team sought to adjust the project design to reflect evolving political and economic priorities, simplify a comprehensive and complex undertaking, and incorporate new development tools that were perceived as effective means to achieve the objectives. The restructuring in November 2002 was initiated by a formal letter sent by the President of the World Bank in which he requested approval for a number of modifications, as noted in the previous section. These and some other modifications were then recorded in the amended DCA of May 2003. The amendment to the DCA at the mid-term review in 2005 was minor and added two sub-components to the third component. Table 2 presents and explains the changes made to individual subcomponents during the course of the Project. Table 3 then presents a summary of the three components and the changes in their sub-components.

Table 2. Revised project components Original component New component and nature of Comment modification [year] 1 – REGULATORY AND CAPACITY BUILDING Telecoms: (i) technical assistance to OMERT to strengthen Item (ii) dropped [2002] A TF (PPIAF) financed most of its regulatory capacity (training and advisory the TA identified for (i). assistance), (ii) was to be self-financed by (ii) acquisition of frequency spectrum OMERT. (iii) Project financed the management equipment, and rural telecom strategy. DCA (iii) advisory services to design a rural telecom amendment in 2002. Requested policy and funding mechanism by WBG President. Air transport: (i) technical assistance for designing and Component dropped [2003] The decision by GOM to implementing an information management restructure Air Madagascar via a system to improve monitoring/regulatory management contract with capacity and Lufthansa Consulting made this (ii) training for the utilization of the IMS and component irrelevant. enhancement of the regulatory capability of the personnel. Center for facilitating enterprise creation: One stop shop for business development (i) advisory services for training of staff, and investment promotion [2002]: Creation of GUIDE, one stop (ii) purchases of equipment for center set-up (i) recruitment of staff; shop for business facilitation. (ii) technical assistance for design of most adequate structure, (iii) equipment for center set-up, (iv) promotion to companies Strengthening the financial system Provision of TA and other material support to Component dropped [2002] Requested by WBG President establish a regulatory framework governing the Sequence of events: (i) decision insurance sector, strengthen capacity to control made to undertake first the joint and supervise the insurance sector, and Bank IMF FSAP (2004) and (ii) undertake reform of the CNaPS launch the financial sector reform with the current Financial Services Project.

Original component New component and nature of Comment modification [year] 2 – TRANSACTION IMPLEMENTATION / PRIVATIZATION5 Privatization capacity building: Supporting the privatization process (i) TA for streamlining procedures of PA [2002]: Original component had budgeted capacity building to carry out complex (i) operating expenses of STP, too much for the privatization unit transactions, (ii) TA for legal assistance, while ignoring public (ii) TA for legal assistance, (iii) TA for environmental assistance, communication. Requested by (iii) international environmental expert for in (iv) communication campaign on WBG President the field training at STP, and privatization. (iv) liaison environmental expert at ONE. 3 – DEVELOPING NEW PSD ACTIVITIES OPME is operational Component dropped [2002] Support to micro enterprises is done through existing and separate projects. Requested by WBG President. Strategies to support PRSP and incubators in Component dropped [2002] Activities to support business place incubators were not considered a priority. Strategy work was considered part of CAPE (below). Requested by WBG President. New component: Developing Export The objective was to support the Processing Zones [2002]: Malagasy export industry (i) feasibility studies, following the crisis that had a (ii) TA to implement strategy on EPZs, negative effect on investment, (iii) infrastructure investments including some 80,000 lost jobs in EPZs and build an industrial zone close to the country‘ s main port. Requested by WBG President. New component: Strengthening Madagascar’s image to attract FDI Requested by WBG President. [2002]: (i) hiring of an international expert to represent Malagasy interests abroad, (ii) marketing and promotion actions, (iii) set-up of an internet based database New component: Supporting the tourism Requested by WBG President. industry [2002]: design and implementation of a tourism master plan. New component: Developing a long-term CAPE was a forum established by strategy on PSD issues [2002]: GOM to articulate reform (i) assistance to CAPE, strategies within the framework of (ii) animation of a private/public sector a public private dialogue. dialogue forum. Requested by WBG President. New component: Insurance facility [2005]: As approved by the Board and Provision of support for an insurance recorded in DCA amendment facility against Covered Risks that will be letter dated May 18, 2005. implemented by ATI in accordance with the Agreement Establishing ATI New component: SME Risk Capital Fund As approved by the Board and [2005]: recorded in DCA amendment Provision of support to the Risk Capital letter dated May 18, 2005. Fund through provision of TA Loans to the Fund‘s SME beneficiaries

5 In the WBG President‘s request for Project restructuring in October 2002, it was suggested that section (iii) ‗TA for executing a large communication campaign‘ under the ‗Local ownership development scheme (PTF)‘ sub- component would be dropped; however, this activity was kept.

1.7 Other significant changes 19. In addition to the Project restructuring in November 2002, the DCA was amended on: (i) May 6, 2003, by the Country Director for amending project description, allocation of funds to credit components, and the financial and institutional arrangements governing project implementation; (ii) April 18, 2005, by the Board for utilizing project savings to fund a technical assistance facility targeting local SMEs, to finance an insurance facility component of the Project, following Madagascar‘s admission as member of Africa Trading Insurance (ATI), and amending various procurement thresholds; (iii) June 14, 2006, by the Country Director for extending the closing date of the Project to December 31, 2007, and reallocating some project funds; (iv) December 21, 2007 by the Regional Vice-President for extending the closing date of the Project to December 31, 2009, and reallocating project funds; and (v) May 3, 2010, by the Vice President of Operations for extending the closing date of the Project to December 31, 2010 within the framework of OP 7.30 Dealing with de facto government. The extensions of the closing dates were requested by the Government to lend support to ongoing activities (see Figure 1).

Table 3. Summary table of changes to sub-components Project Mid-term Project restructuring review Appraisal 12/11/2002 18/04/2005 1 - Regulatory capacity building Petroleum regulator (OMH) X X X Telecoms regulator (OMERT) X X X Civil aviation authority X - - CFEC X - - Strengthening of the financial system X - - 2 - Transaction implementation Institutional capacity (STP) X X X Local ownership scheme (PTF) X X X Privatization transactions X X X 3 - New PSD Activities Center for the promotion of micro and X - - small enterprises (OMPE) PSD Strategies in support of PRSP X - - One Stop Shop (GUIDE) - X X Develop EPZs - X X Trade and Investment promotion - X X Support to the tourism sector - X X CAPE / PPD forum - X X African Trading Insurance (ATI) - - X SME support (BPI) - - X

Note: ‗X‘ implies that the sub-component was included and ‗-‗ implies that the sub-component was excluded.

Figure 1. Project timeline

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Restructuring & Project DCA 2nd political effectiveness amendment crisis erupts: and PIU OP/BP 7.30 DCA amendment 1st political restructuring Mid-term crisis erupts review

Board DCA DCA Project approval amendment amendment closing

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

20. The background analysis was sound, lessons learned from the first project were stressed in project design, private sector consultations were organized and recorded, and the rationale for the Bank‘s intervention was clear. The Government had prior to project design developed a strategic vision for private sector development as part of its National Support Program for the Private Sector. Project preparation and design also benefitted from the extensive expertise developed in the PATESP Project that was approved by the Board on May 29, 1997, which closed on December 31, 2002.6 The Project focused on deepening the market deregulation and divestiture activities that were undertaken in PATESP. Concerns and priorities were well identified, and several analytical reports underpinned the project, including on environmental safeguard issues.7 The volatile political context and the fragility of local institutions were prominently acknowledged in the PAD as political turmoil had affected PATESP.

21. The PAD stressed the importance of ensuring improved transparency and increased local participation in the privatization process but also highlighted the significant risk associated with political instability and limited capacity of local institutions. The PAD dedicated significant attention to improving transparency in the reform process: for example by proposing separation of the policy-making and regulatory functions of public agencies, by providing modern management information systems, by moving toward financial autonomy of the regulatory agencies, and by applying best practices in the privatization process. The Project also intended to scale up local private participation in the divestiture program to make necessary reforms palatable to a public audience who too often associated privatization with foreign takeovers of domestic assets. It proposed that local investors would be invited to bid in a joint venture with foreign equity and technical partners. It also aimed at establishing procedures for distributing shares or mutual funds which would contain a stipulated share of each divested firm. Finally, it would facilitate the expansion of indigenous local firms, in particular micro-enterprises which would be provided start-up services. These initiatives were taken amid great political uncertainty and with acknowledged weaknesses in governance.

6 World Bank (2003). 7 World Bank (2000).

22. The high complexity and comprehensive scope of the Project coupled with its sensitive nature required a high level of government commitment and collaboration between several public institutions. The project was highly demanding of the Government and the implementation team and it came at a high political cost. The privatization agenda was unpopular among many stakeholders and the Government was concerned about the loss of labor. The incumbent Government was committed at least on paper at the time of project preparation and project design but reform pressure was also applied by the International Monetary Fund (IMF) through its programs. Project documentation highlighted the high risk associated with reform fatigue. Key issues such as political fragility, political economy concerns, and limited government capacity to build solid institutions within tight deadlines were indicators that the risks were high. The significant complexity of the Project could have been reduced if the new PSD activities component had been left out at the design stage and left aside for another Project that focused on SME support. The project did not include external partners and co-financiers outside of GOM and the attention to environmental and social safeguards was high.

23. The PDO of improving access, reliability and affordability of key utilities was highly relevant for private sector development, investment promotion and shared growth. The regulatory capacity building and privatization components were both essential building blocks in GOM‘s development agenda. Market liberalization, competition and effective regulation are necessary components to improve market performance. By focusing on key factor markets (finance, telecoms, transport) as well as inefficient monopolies (airports, cotton, sugar), GOM would have been well placed to achieve its development objectives if reforms were properly implemented with attention to competition and effective regulation. Significant progress had already been made in the 1990s, particularly through the PATESP project, to prepare and start the liberalization process. Thus, the main objective was consistent with the prevailing economic priorities of the Government.

24. The ‗new PSD activities‘ component was not closely associated with the PDO before it was restructured in November 2002. The title of the third component, ‗New PSD Activities‘, was somewhat misleading: ‗SME promotion‘ could have been more appropriate. One of the three sub-components—‗New strategies in priority sectors identified by Government‘—for ‗New PSD Activities‘ was not defined at the start. While the establishment of the one stop shop (GUIDE) was a targeted and practical sub-component that benefited all prospective entrepreneurs, the aim to train only ten local startups was largely irrelevant and the aim to support future priority sectors of the Government offered flexibility but limited guidance to the team. While this added flexibility to adapt part of the Project to GOM‘s evolving agenda may have been appreciated by the client, this component that performed particularly poorly as the new activities were weak either in design or implementation. The initial resources allocated for the third component were less than 6 percent of total resources. In addition, the limited resource allocation (US$0.28 million) for the transport sub-component covering some narrow technical assistance interventions was unlikely to achieve the ambitious outcome indicators on transport prices. In transport, it would also have been difficult to determine causality between identified interventions and the two outcome indicators (Table 1).

25. Some targets should have been more specific and performance indicators more comprehensive. The combined targets of improving access, lowering prices and improving quality/reliability were ambitious despite the lack of quality and poor access as well as relatively high prices of services. While the experiences from many other countries show that access and quality often improve substantially as a result of market liberalization, absolute price changes are often marginal. Large improvements in access, choice, and quality raise the utility for consumers. Competition facilitates price segmentation which by extension can result in both lower and higher prices depending on the service in question. Price is also closely related to taxation as illustrated in the petroleum sector. Potential efficiency gains can therefore be captured by increased rents and increased taxes can neutralize any efficiency gains and even raise the overall price. The retail price is therefore an imperfect target. There was furthermore no performance indicator defined for reliability. In addition, the outcome indicator of significantly increasing private investment in targeted sectors was not a useful measurement of the successful reforms because political uncertainty scared off investors for years following each crisis.

26. Proactive measures to ensure competitive markets could have been more prominent in project design. Market liberalization and privatization do not necessarily ensure competitive markets. Proper phasing and sequencing of reform measures are critical and so is the autonomy of regulatory bodies. The existing literature on market liberalization does pay much attention to ensuring a healthy dose of competition in order to boost reliability and affordability. While an important body of this literature was developed in the years subsequent to project launch, the project could have highlighted these issues more upfront in the design. The PAD mentioned competition as a byproduct resulting from a strengthened regulator; however, ensuring autonomy was arguably just as important as building technical expertise in order to induce a higher level of market competition. In addition, the design of the privatization process could have promoted the breakup of national monopolies into two or more providers in order to stimulate competition. Transparency clauses could have conditioned transaction support: openness and simplicity would have been the key principles in an approach that particularly stressed competitive markets. Clear rules and punishments would have been established. Price caps could have been considered for some sectors. These types of initiatives are often necessary but not sufficient to promote competition.

2.2 Implementation

27. Political developments beyond the control of the Project team had serious implications for the Project. Project implementation was severely delayed at the start due to the unraveling of a political crisis that paralyzed the Government and the civil service; and at the end due to a similar political crisis. In December 2001, shortly after the Project was approved by the Board of Directors and the signing of the Credit Agreement, the incumbent President (Didier Ratsiraka) and his main opponent (Marc Ravalomanana) both claimed victory in the presidential elections. In April 2002, after months of sporadic violence and considerable economic disruption, the High Constitutional Court pronounced Ravalomanana as President following a recount of votes. In July 2002, Ratsiraka left the country and Ravalomanana effectively gained control of power. The new political context and harsh economic environment left the new Government unwilling to implement painful new reforms and divest politically sensitive enterprises.

28. In November 2002, soon after the new cabinet had been installed, the country project portfolio was restructured, including the Project, to better reflect the priorities of the new administration. This was a necessary step to enhance Project ownership in the new administration. Significant reallocation of funds was made and some components were dropped and others introduced. The outcome was a project that better responded to the priorities in the aftermath of the crisis with a less ambitious agenda on privatization and a more ambitious agenda on rebuilding the private sector and promoting business. At the time, these initiatives must have been regarded as rather drastic but it would turn out that these amendments did not go far enough to reflect the evolving priorities of the new administration. In particular the Government‘s commitment to the privatization agenda was weak.

29. The supervision reports reveal a sense of frustration of progress: on privatization in general and on New PSD Activities in particular. The project faced significant challenges in building new institutions such as the One Stop Shop for Investment and Business Development (GUIDE) and CAPE (see Annex 2, component 3); in strengthening the existing implementation units; and in creating an environment conducive to collaboration between public agencies. The willingness by the Government to take difficult decisions was often lacking. The new Government hesitated over further privatization and supervision records raise questions of ownership in this process. No doubt, the privatization of enterprises took longer than anticipated and Madagascar Airports (Aéroports de Madagascar, ADEMA), Madagascar Power and Water Company (Jiro Sy Rano Malagasy, JIRAMA) and Madagascar Sugar Industry (Siramamy Malagasy, SIRAMA) were never privatized. The fact that several of the public enterprises were poorly managed did not help. For example, SIRAMA was already bankrupt, many companies did not have accounts, environmental audits had to be done, assets identified and recorded, etc. In addition, a combination of insufficiently allocated counterpart funding and bureaucratic procurement procedures adopted by the Project Implementation Unit (PIU) led to significant arrears that slowed down progress as contractors and consultants faced great uncertainty about remuneration. The economic crisis left the Government short of funds and the International Development Association (IDA) credit was therefore increased to 100 percent.

30. To regain momentum, the Client and the World Bank developed a short-term action plan to closely monitor progress and new staff was recruited to accelerate implementation. The results achieved under this plan in six months were to decide the future of the Project and in December 2003, the supervision team concluded that this initiative had brought significant improvements. The supervision reports indicate that several experts were hired to help alleviate shortages of manpower and guidance was provided in action plans, including several recommendations to establish frequent meetings and bring all parties to the table. The initiatives to enhance the institutional capacity of the Privatization Secretariat (Secrétariat Technique à la Privatisation, STP) in the fall of 2003—following resignations of key staff members transferred from PATESP to PSDP2 due to salary reductions—were decisive to complete the privatization of the Cotton Company (Hasy Malagasy, HASYMA) and the Telephone Company (Telecom Malagasy, TELMA). A program of staff training in privatization and public-private partnerships (PPPs) was launched and study tours organized with focus on practical aspects of implementing programs and divestiture. The capacity building activities at STP was later key for the success of the public enterprise reform program.

31. Project implementation was impeded by the organizational structure during the first half of the Project. The initial project management structure could have been more supportive to effectively address the multitude of challenges that the complex project posed to the team. The Government official who was appointed head of the Implementation Agency (or Unité de Coordination du Projet, UCP) could have been more proactive and results oriented (PIU = UCP + STP + PSD units). The first professional who was hired to be in charge of the crucial monitoring and evaluation (M&E) activities did not have the training and experience for the role. The two advisory and implementation units—STP for components 1-2 and the PSD unit for component 3—that the UCP oversaw did not communicate and coordinate as necessary (see Figure 2). STP, a ministry unit, was more responsive to the Ministry of Finance and Budget than to the head of PIU. It worked closely with the ministries in charge of the state-owned enterprises (SOEs) during divestiture preparation. The PSD unit—an implementation unit created inside the Project—was more responsive to the Ministry of Economy and Industry (previously Ministry of Industry, Trade and Private Sector Development) than UCP. This organizational structure was implemented to strengthen the commitment of various ministries but it also imposed high coordination costs, as highlighted in the government Report in Annex 7.

32. The PIU was initially over staffed and bureaucratic and the organization was drastically restructured to a slimmer and more efficient implementation unit in June 2006. Each unit (UCP, STP, PSD) in the PIU had its own procurement and accounting team; and the PIU counted 69 staff on renewable one-year contracts by the end of 2005. Many of these staff members were government officials transferred to the new institutions originally hosted under the PIU umbrella. They were not paid by the PIU and performed public services, such as issuing work permits and business licenses at the GUIDE. This arrangement was meant to offer flexibility in future staff decisions. While the supervision records highlight organizational weaknesses, and there was some trimming of unnecessary staff that was transferred from PATESP to PSDP2 and more reliance was transferred to World Bank staff, decisive action to correct the situation would take until early 2006. As the Project was heading towards closing in December 2005, and there was significant uncertainty whether the Project would be extended or not, some high-level officials left the PIU, including the head of UCP. Many staff members also left as a natural result of the completion of sub-components such as the Support Committee for the Enterprise Relaunch Pilot (Comité d‘Appui au Pilotage de la Relance de l‘Entreprise, CAPE) (11 staff) and GUIDE (13 staff). The PSD unit (AGEX B in Figure 2) was removed from the organizational chart and the government-sponsored civil servants at UCP were transferred back to the Ministry of Finance and Budget. The team took this opportunity to significantly restructure the organization, which resulted in a much slimmer organization (see Figure 2). Several sub-components in the PSD unit were also removed and none of the Project staff associated with this unit had their contracts renewed. The number of staff was thus cut from 69 to 11.

Figure 2: Organizational structure in 2002-2006 (left) vs. 2006-2010 (right)

Source: STP Director‘s report (2011).

33. The mid-term review was used to add two new sub-components and provide advice on how to reactivate some non-performing sub-components. It offered an opportunity to the Project to disassociate itself from some sub-components that were not progressing and focus support on those that were more promising. However, no sub-component was removed and the opportunity to cut losses was not seized at this time. Instead, the supervision records of the mission following the mid-term review (January 2006) were more candid, emphasizing disappointments and lack of achievements, and suggesting more drastic measures to address existing problems. For example, the Privatization Trust Fund (PTF) was a non-performing sub-component and the supervision mission in January 2006 recommended dropping this sub-component from the project. The same held for the privatization of SIRAMA. It also recommended GOM to cancel the contract with the Export Processing Zone (EPZ) property developer (GETIM) given a number of irregularities and weaknesses in performance (see Annex 2, component 3). It advised that EDBM would take over GUIDE and implicitly adopt the role of CAPE, which had exhausted its effort in enhancing public private dialogue.

34. The most recent political crisis and the ensuing non-replenishment of the project special account under OP/BP 7.30 led to a standstill of the project‘s implementation from March 17, 2009, to the project closing date of December 31, 2010. This development led to a freeze of most Project activities and necessary action to conclude ongoing initiatives could not be taken. During this crisis, the country was suspended by the African Union (AU, then the Organisation of African Unity) and the Southern African Development Community (SADC). Another outcome was that as of January 1, 2010, Madagascar is no longer designated as beneficiary of U.S. trade preferences offered in the African Growth and Opportunity Act (AGOA).8 The country‘s eligibility of AGOA preferences, starting October 2000, helped it establish a significant textiles and clothing sector—export processing zone (EPZ) exports were worth US$0.82 billion in 2008 (EIU, 2010)—that has been seriously damaged in the last two years. As of April 2011, the international community including several governments, bilateral and multilateral donors still does not recognize the current de facto Government (i.e. Haute Autorité de la Transition).

8 U.S. Government (2009).

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

35. The design of the M&E framework should have been better tailored to the PDO and to existing baseline data sources. While performance in the telecom sector was adequately measured, outcome indicators for other sectors were left out from the M&E framework, including the petroleum sector. To measure progress on access, reliability and affordability of key utility services, a more comprehensive set of indicators would have been required and more independent data collection would have been necessary. The restructuring in November 2002 partly addressed this issue as a number of new performance indicators were added to the monitoring framework and others modified. The PIU also modified the M&E framework to keep it more relevant and easier to monitor. The M&E framework remained weak, however, and the supervision teams struggled with the M&E function. Most aide-memoires of supervision missions did not measure performance according to the pre-defined performance indicators.

36. The M&E framework could have been used more extensively during the first half of the Project. Data for several of the key project indicators (KPIs) were not systematically collected, partly due to the fact that they were not easily accessible in standard databases. For example, one of the KPIs was sector specific inflows of private investment. While these variables are reported in central World Bank databases and by the Central Bank, the information is not available for all years and it is particularly lacking for Madagascar. Many KPIs were output indicators and to measure progress on competitiveness, the project could have made more use of indicators on enterprise creation and private sector productivity. The first person who was hired for the M&E activities had no prior experience or training in monitoring or evaluation. The M&E function suffered as a result. It was not until a new person was recruited in the mid-term of the Project that the PIU became more proactive in collecting data and monitoring project performance according to the indicators. But it was then too late to retrieve some of the historical data and the complexity of some of the existing indicators and a general lack of data left the M&E function underutilized.

2.4 Safeguard and Fiduciary Compliance

37. The respect of safeguard issues is rated satisfactory. The Project was originally rated as environmental category B (partial assessment). Three main provisions were incorporated in Project design to ensure compliance with safeguards. First, the Project would prepare environmental partial and full audits for listed candidates. Second, the project would offer capacity building to the privatization agency and the national environmental agency. Third, the project would support public involvement through comprehensive consultations and a communications campaign. Safeguard policies were deemed applicable only to environmental assessment (OP 4.01, BP 4.01, GP 4.01). An environmental pre-audit was conducted for each listed privatization candidate following a comprehensive consultation process.

38. Environmental audits were conducted for ADEMA, HASYMA, SIRAMA and the National Oil Company of Madagascar (Solitany Malagasy, SOLIMA) (post-audit) as planned in project design. They were approved by World Bank teams with technical assessments provided by the World Bank‘s Environment and Natural Resource Management Unit for the Africa Region (AFTEN) and publicly discussed and disclosed. These environmental audits were very

15 large undertakings that recorded and assessed the situation in reports several hundred pages long. For example, the SOLIMA report was 833 pages long not including addendums. In the privatization of SOLIMA, which had by far the most critical environmental impact, the environmental cleanup was assigned to the new private companies, in particular by Galana, which was required to take care of the issues linked to the main pipeline and old refinery and this was arguably a good solution.

39. The PAD dedicated significant attention in assessing the client‘s procurement and financial management capacity, and in providing recommendations to boost this capacity. Procurement is rated satisfactory because the PIU followed the rules, procedures and guidelines according to the World Bank‘s Procurement Specialist. Financial Management is rated moderately satisfactory because payment schedules were not adequately respected for parts of the Project; in particular during the first years when the inflow of counterpart funding was irregular and the PIU organization contained two layers of procurement and financial management personnel. The PIU cleared outstanding arrears during the last two years of the Project and it also expediently produced detailed and exhaustive accounts requested by the Implementation Completion and Results (ICR) Report author. Disbursement lagged due to the political crises of 2001/2002 and 2009/2010 but disbursement caught up rapidly once the Project was allowed to operate.

2.5 Post-completion Operation/Next Phase

40. There is no proposal to implement a third PSD project. The World Bank‘s Finance and Private Sector Development Department in the Africa Region is implementing a US$170 million Integrated Growth Poles Project (effective September 28, 2005; closing December 31, 2012) that is covering several activities that both complement and sustain some of the Project‘s previous activities (e.g. EDBM). A second Growth Poles Project would be particularly relevant given the priorities of private sector-led growth. The Government still holds a portfolio of poorly performing public enterprises that would benefit from initiatives that would strengthen management. Some of them need to be financially restructured or closed down. Developing a stronger public private partnership framework is a high priority that the World Bank currently is being drafted into providing support for.

41. Continuing efforts to strengthen the regulatory capacity of key sectors would be useful to lock in the Project‘s achievements in building institutions. Capacity building of the telecom regulator is part of the IDA financed Madagascar Communications Infrastructure Project (PICOM). Future activities may benefit from conditions that regulators are made meaningfully independent, that competition plays a greater role in its objectives, and that revenues are accounted for transparently. The establishment of the EDBM, which incorporated GUIDE and role of CAPE, is an institution that has achieved very positive results and sustaining this institution through permanent staff and a financial commitment by GOM is essential for promoting entrepreneurship and investment.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

42. The relevance of objectives, design and implementation is rated moderately satisfactory.

43. The PDO of improving access and reliability of key utilities was highly relevant for private sector development, investment promotion and shared growth. It remains highly relevant until this day. Market liberalization, competition and effective regulation are necessary components to improve market performance. By focusing on key factor markets (energy, finance, telecoms, transport) as well as inefficient monopolies (airports, cotton, sugar), GOM would have been well placed to achieve its development objectives in case reforms were properly implemented. The current CAS (2007-2011)9 is organized around two main pillars: activities that will help remove constraints to investment; and activities geared toward improving the scope and quality of service delivery. Both pillars were the focus of the Project. In addition, the CAS supports the Government‘s Madagascar Action Plan (MAP) 2007-2012, which was prepared through extensive dialogue with the private sector and civil society, and includes eight commitments of which the second commitment ―connected infrastructure‖ and sixth commitment ―high growth economy‖ commensurate with the Project. Significantly increasing investment to promote high growth is one of the key priority areas in this plan.10 Finally, the World Bank Country Economist noted in April 2011 that achieving this PDO will remain a high priority in the years to come.

44. The original design of focusing primarily on strengthening regulatory capacity and divesting of poorly performing public enterprises was also highly relevant but the case for including the new PSD activities component was less apparent to achieve the PDO. These first two components were essential for achieving the PDO and the project design reflected proper diagnosis of a development priority that remains relevant. The design could have included more concrete provisions for mechanisms controlling for market competition and ensuring that regulatory agencies gained sufficient autonomy. The third component, in the PAD, ―New PSD activities‖, was a weak and vaguely designed component. While establishing a center for the promotion of MSEs (GUIDE) was useful in general, the design of the enlarged ‗New PSD Activities‘ component following both the 2002 restructuring and the 2005 mid-term review lacked in terms of demand analysis and few interventions did effectively address the ―competitiveness‖ of Malagasy companies. The redesign of this component affected the Project negatively during implementation. In addition, the causality of some activities and PDO achievement was vague and the PAD lacked an economic and financial analysis section.

45. The actions taken in the implementation process were proactive and flexible but some difficult decisions could have been taken earlier. The World Bank‘s implementation assistance was adaptive to change, as the Project underwent one major and several minor restructurings, and it was responsive to the needs of the country, as the priority of private sector competitiveness was elevated. However, the willingness to add sub-components resulted in a Project that lost

9 World Bank (2007). 10 Government of Madagascar (2006).

some focus and covered too many activities. The focus on output indicators and limited usefulness of the M&E framework led to lenient ratings of progress

3.2 Achievement of Project Development Objectives

46. The achievement of the PDO, as summarized and derived in Tables 4-5, and analyzed in detail in Annex 2, is rated moderately unsatisfactory. This rating is in line with the final Implementation Status Report (ISR) rating that stressed that no progress towards PDO achievement had been recorded following the implementation of OP/BP 7.30 in March 2009. Table 4 presents a summary of achievements of the PDO based on the lengthy analysis in Annex 2. The first column divides the PDO up into five separate sections and presents the perceived level of importance. The second column presents the achievement of key indicators while the third column summarizes the achievement of PDOs and the ICR author‘s ratings.

Table 4. Summary of ratings and achievements of PDOs PDO Achievement of indicators (see Achievement of PDO (see Annex 2 for details) Annex 2 for details) 1. Assist the 1.) Telecoms 1.) Telecoms [moderately satisfactory] Borrower to improve The KPI targets on access and Access: moderately satisfactory (mobile: highly access, reliability reliability were met and even satisfactory; fixed: unsatisfactory; Internet: and affordability of generously exceeded; moderately unsatisfactory) key utilities The KPI target on affordability was Affordability: moderately unsatisfactory (mobile: partly met (on mobile telephony but moderately satisfactory; fixed and internet: [High relative not on fixed telephony); unsatisfactory) importance] Reliability: satisfactory 2.) Petroleum 2.) Petroleum [moderately satisfactory] KPIs were partly met as (i) training Access: moderately satisfactory (but lacking data) program was developed (but not Affordability: unsatisfactory (but a high level of implemented); and (ii) the taxation) environmental audit was completed in Reliability: satisfactory February 2005. The recommendations (quality/presentation/packaging improved) in the Environmental Impact (The causality for this activity and PDO targets is Assessments were partially very vague) implemented such as treatment sludge in dumping sites in Toamasina. 2…through Privatization partially completed: Moderately unsatisfactory completion of the Two SOEs (HASYMA, TELMA) out The work done by the PIU and the Project team in divestiture program of four SOEs (SIRAMA, International preparing and executing this privatization process of key state-owned airport of Antananarivo) covered in would be rated satisfactory. However, the lack of enterprises, PAD were privatized. The Project commitment and inaction by the Government made supported the privatization process of it impossible to complete the agenda: first, when [Activity output] eight additional public enterprises that the new administration took over in 2002 (reduced the Government later decided not to priority) and then when the latest administration privatize: ADEMA, Air Madagascar, took over in 2009 (financial difficulties leading to CIBA, JIRAMA , SIRAMA, Sofitrans, non-payment of arrears to creditors of liquidated SBM, South RNCFM Network. companies). TELMA: Privatized in June 2004. Overall, the results of the privatization and HASYMA: Privatized in October liquidation activities are most evident in 2003-2005 2004. when some large SOEs were privatized and in Liquidation partially completed: 2008-2010 when several smaller PEs were Out of 30 PEs covered in the original liquidated. 2006-2007 were used to prepare this PAD, and other companies added liquidation process.

PDO Achievement of indicators (see Achievement of PDO (see Annex 2 for details) Annex 2 for details) along the course of the Project: Outstanding arrears by the Government to several 15 PEs liquidated: AAA, AFM, ANM, creditors reduce the overall impression of the ARS, CMN, FEB, Forestas, Fesa, achievement. The achievements by the Project to Serdi, Sevima, SIB, Socomi, Somadex, support enhanced management of public Somalac, Sopraex and Torginol. enterprises were not possible to assess for the ICR 12 PEs liquidated but GOM yet to given lack of data. clear debt to creditors (MGA 28.9 billion on December 31, 2008): Sumatex, Sogedis, Lansu, Somapalm, Bcl, Famama, Fev, Sice, Roso, Kafema, Somacodis and Soama. 2 PEs suspended in 2007 by Prime Minister Office: SORIMA and FABABE; 6 PEs transferred to MoF due to ongoing litigation: SOLIMA, FIMA, DARRIEUX, SMTM, SINPA and COROI. The Privatization Trust Fund was created, and fully The two additional KPIs were staffed with a Fund Manager hired from the private unfulfilled: sector. Although GOM took years to make The KPIs of (i) 10% of shares of the progress on this activity, since its creation a few targeted private enterprises have been Government shares in privatized companies have transferred to the Privatization Trust been transferred to PTF. Since the Project has Fund (PTF) at the closing of each stopped its financing, GOM is currently covering transaction; (ii) and PTF has offered all the operational costs of PTF including financing these shares for sale to local small of studies. investors. 3…and capacity The target was provision of technical Moderately satisfactory building initiatives to assistance to strengthen effective The role of STP in the Project was to provide strengthen the regulatory capacity: partially met advisory services and execute the decisions of capacity of (i) Privatization Secretariat (STP): this GOM. This institution has been dismantled since autonomous institution was essential for the project closing and the institutional memory risks regulators and execution of the privatization and being lost. It performed its tasks in a difficult privatization liquidation process and the Project political environment and without the freedom to agencies, achieved its objective of capacity take key decisions. building; however, the institution has [Activity output] now been dismantled. There is anecdotal evidence from industry insiders (ii) Telecommunication regulator and civil servants that the technical capacity of (OMERT): capacity building activities OMERT and OMH is rather good, although it strengthened the institution but it is should be strengthened further, and that they both insufficiently autonomous. lack autonomy to adequately address some (iii) Petroleum regulator (OMH): outstanding issues. Important decisions are still capacity building activities largely up to the discretion of relevant ministries. strengthened the institution but it is insufficiently autonomous. 4…facilitate entry of One Stop Shop with capacity to assist Moderately satisfactory new operators in the MSEs: target met. Telecom: one fixed line operator, two broadband deregulated sectors, operators, four mobile telephony operators Petroleum: one storage provider, three logistics [Activity output] companies (of which two controlled by storage provider), four retailers. New retailers must establish a minimum of eight service stations. Two Chinese companies have licenses to build service stations but they have not invested in the last three

PDO Achievement of indicators (see Achievement of PDO (see Annex 2 for details) Annex 2 for details) years. New storage providers must have a certain level of national coverage. Electricity and water: monopoly. The overall ambition for this part of the PDO of the Project was lowered following the 2002 restructuring. 5…and increase the Increased competitiveness of Malagasy Unsatisfactory competitiveness of companies: Unmet There is little evidence that the Project‘s activities Malagasy companies Facilitate growth exports through helped increase the competitiveness of Malagasy setting up EPZ: Unmet. companies. [High importance] The revised KPI framework adopted On the positive side: EDBM helped to significantly by the PIU notes that: reduce the transaction costs of starting a business (i) # of investments: in 2007: 14; 2008: and obtaining permits as well as some information 15; 2009: 8 and September 2010: 5. costs, in particular for entrepreneurs in the regions. (ii) Cumulative investments at end of The promotion and marketing activities may or 2009 were 37 against 51 targeted. may not have generated new investment, raised (iii) Total value of investments: $2.4 Madagascar‘s international standing and boosted million in 2007 to $6.6 million the dialogue between the public and the private September 2010. sectors, but it is impossible to establish any causal (iv) Jobs created: 146 in 2007 to 359 link between these activities and the September 2010. Jobs sustained: 293 ―competitiveness of Malagasy companies‖. in 2007 to 576 September 2010. On the negative side: the sub-components on (i) Number of SMEs assisted: 12 in 2007 developing EPZs, (ii) supporting the tourism to 22 September 2010. sector, establishing (iii) an insurance facility and (iv) an SME Risk Capital Fund did not fully The indicators for this sub-section of materialize, were insufficiently designed, or not in the PDO were vague and confusing. demand—thus, while intentions were good, they had no or little impact. The investments in the left column were financed by IFC and partners and the Project financed the technical assistance.

47. The PDO following project effectiveness contained two sections that made up the core PDO: (i) ―assist the Borrower to improve access, reliability and affordability of key utilities‖; and (ii) ―increase the competitiveness of Malagasy companies‖ (see Table 5). The activities of the first and second components (regulatory capacity building and transaction implementation) addressed the former core PDO and the third component (new PSD activities) addressed the latter core PDO. As noted in Tables 4-5, the achievement of the first core PDO is rated moderately satisfactory and 66.3 percent of total disbursements (component 1: 16.7 percent; component 2: 49.6 percent) were dedicated to this objective. The achievement of the second core PDO is rated unsatisfactory and 33.7 percent of total disbursements were dedicated to this objective. The conclusion is that the overall PDO achievement is moderately unsatisfactory largely thanks to the poor performance of component 3.

Table 5. Derivation of the overall rating for achieving the PDO

Component 1: Component 2: Component 3: Project Development Regulatory Capacity Transaction New PSD Activities Objective Building (Disbursement: Implementation (Disbursement: 16.7%) (Disbursement: 49.6%) 33.7%) “Assist the Borrower to improve access, reliability Moderately satisfactory Moderately satisfactory and affordability of key utilities” “ increase the competitiveness of Malagasy Unsatisfactory companies”

48. In addition, the achievement of the main outcome indicator—“private investment in the targeted sectors increased by US$100 million annually from 2004 to 2007”—was far not achieved. Annex 2 presents data on both sector and aggregate levels and the analysis concludes that this indicator was unfit the highly volatile political situation in Madagascar. The PIU broadened the scope and monitored FDI as a share of GDP but this change drastically reduced the causality between interventions and investment.

3.3 Efficiency

49. Project efficiency is rated moderately unsatisfactory for the following reasons. First, Annex 1 presents a cost breakdown by component and sub-component. It reveals that the initial estimates in the PAD for supporting regulatory capacity building were greater than necessary, in particular for OMERT, and the Project cut funding for several activities that performed poorly. The regulatory capacity building component consumed 36 percent of the appraised funds and the transaction implementation component made use of 79 percent of the appraised funds. The new PSD activities component disbursed significantly more than the PAD had forecast; however, it still disbursed slightly less expected at project restructuring.

50. Second, according to STP, in 1999-2010, the total cost of the privatization process was MGA 107.8 billion and the total income was MGA 118.5 billion, which resulted in a small but positive balance of MGA 10.7 billion. Of the total income, roughly MGA 67.5 billion was generated during the Project‘s effectiveness, in 2003-2010, and the cost was an estimated MGA 18.2 billion (see Annex 6). The TELMA privatization generated a large surplus in 2004 (see Annex 2). The liquidations of ROSO, SINPA and SOMACODIS also generated large surpluses. A net present value (NPV) calculation for the privatization and liquidation process starting in 2003 is an estimated MGA 39.0 billion for a discount rate of 10 percent and MGA 33.9 billion for a discount rate of 15 percent (see Annex 3). However, these calculations do not take into account US$3.9 million of expenditures of the Privatization Secretariat (STP). The privatization did attract new investments but data are not readily available.

51. Third, implementation efficiency was negatively affected by the political crises, which produced new administrations, of which the first was less committed to the privatization process. According to STP estimates, Government indecision on privatization led to MGA 56 billion spent on studies and legal fees for the eight SOEs that were not privatized (see Annex 2). While

21 the Project covered a modest proportion of these expenditures, and some of these investments may have been value for the companies at large, they did not help achieve the objectives that they were meant to do. Finally, more than eight years passed between project effectiveness and project closing. An earlier closing date, as originally planned, would have allowed the Government to assess the costs and benefits, and design a new follow up Project that would better have reflected the Government‘s priorities.

3.4 Justification of Overall Outcome Rating

52. The overall outcome is rated moderately unsatisfactory. It takes into account the relevance of objectives, design and implementation that was rated moderately satisfactory (section 3.1), the achievement of the project development objectives that was rated moderately unsatisfactory (section 3.2), and project effectiveness that was rated moderately unsatisfactory (section 3.3). The rating is partly a reflection of the wavering commitment by the new Government to follow through and implement the agreed privatization agenda, the unsatisfactory results of the new PSD activities component, and prolonged period of project implementation (including under OP/BP7.30). A more narrow interpretation of output components may have warranted the moderately satisfactory rating of consecutive ISRs, but a strict interpretation of actual outcomes lowers the overall impression.

53. The Project can count several important achievements that were attained in a difficult political environment: in particular the privatization of TELMA and HASYMA, the full liquidation of 15 public enterprises and nearly full liquidation of another 12 public enterprises, the establishment of one of Sub-Saharan Africa‘s first one stop shops (GUIDE) and its incorporation into EDBM, which drastically reduced the time and procedures of starting a business, and the strengthening of technical capacity at OMERT and OMH. The analysis and arguments are developed at length in Annex 2.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

54. The project was gender neutral and the Project‘s poverty impact is difficult to assess. Annex 2 covers the achievements in terms of access, reliability and affordability of telecom services and petroleum products. The PAD highlighted that the expected beneficiaries were all agents in the economy, thus no particular interest group was identified. Arguably, the two most important contributions to the poor are: (i) the direct impact that accessible, affordable and higher quality telecom services as well as accessible, secure and higher quality petroleum goods will have on poor consumers; and (ii) the increased scope for the Government to invest in for example health and education resulting from its strengthened fiscal position after the divestiture of loss making public enterprises.

(b) Institutional Change/Strengthening

55. During the course of the project, the regulatory agencies OMERT and OMH were strengthened considerably through new equipment, training, etc. This impact will have a positive

22 impact on the telecom and energy sectors for future generations. The outcome is far from perfect, however, as both agencies need meaningful autonomy from the central Government. Increased transparency in budget and decision making would lead to increased trust, broader support, and healthy scrutiny of activities and decisions.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

56. A Stakeholder Workshop with a group of Malagasy investors was organized during the November 2010 ICR mission. The aim of the discussion was to get a clearer understanding of how the privatization and liquidation process had been received by local investors—in particular with regards to transparency, openness and fairness. In short, the group argued that the sale of assets had been sufficiently open, transparent and equitable. It was not a perfect environment in which to privatize and liquidate companies but STP and the liquidators did a good job and the Ministry of Finance and Budget achieved a lot in a severe fiscal crisis. Annex 5 presents the issues that were raised during the workshop and the participants‘ recommendations for any future divestiture of publicly held assets.

4. Assessment of Risk to Development Outcome

57. The risk that development outcomes will not be maintained is rated moderate. The Project‘s main accomplishments in key areas such as regulatory capacity building and privatization of public enterprises are to some extent irreversible. The main risk is that the political and economical crises deepen further, or reach a steady state, which would dilute the motivation of the civil service, compel leading staff to search for opportunities abroad, worsen governance in regulatory agencies, EDBM and public enterprises, and bring the reform process that Madagascar embarked upon in the 1990s to an indefinite standstill. In addition, some sub- components, in particular for ‗New PSD Activities‘, did not deliver intended results and are unlikely to do so in the short- or medium-term, including the EPZ and PTF.

a. On regulatory capacity building, the establishments of OMH and OMERT, and the investments in activities to strengthen these institutions, have helped build significant technical expertise. The challenge is for GOM to strengthen these regulatory agencies and in particular increase their autonomy in order to avoid political interference and raise their effectiveness in achieving their goals. The situation is challenging for STP, which was first slimmed down and then left without staff from May 2011 onwards. It has put institutional memory of privatization and management of public enterprises at serious risk of being permanently lost. This would make future divestiture of public enterprises unnecessarily costly.

b. On privatization, the telecoms market is now contested by four mobile telephony companies, two fixed broadband companies, and one fixed line operator. Accessibility and reliability are highly unlikely to deteriorate in the future. Similarly, there are four petroleum retailers, three logistics providers and one storage facility. There is a risk that high country risk will slow down investment necessary to further improve access and reliability of key utilities. As the analysis in Annex 2 of the telecoms sector highlighted,

constant improvements are required only to stand still since almost all countries are implementing reforms and improving performance. Companies that were liquidated or privatized are unlikely to be taken over by GOM; thus the overall achievements of this component are unlikely to be reversed. There is a risk, however, that it will take a long time before divestiture of the remaining enterprises controlled by GOM will be a priority unless they bleed to the extent that GOM is forced to close them down—potentially in an uncontrolled manner. In addition, the aim of broadening private ownership of existing assets was seemingly never a priority of GOM, given the timid interest in empowering the PTF agency. Finally, there is a risk that creditors of several liquidated companies will have to wait for compensation as GOM faces a prolonged fiscal crisis.

c. On new PSD activities, EDBM remains an important institution for entrepreneurs and investors and the two main risks it faces are: (i) finding a financially sustainable solution for the operation of its One Stop Shop offices; and (ii) ensure that performance is maintained. The original plans of establishing an EPZ in Tsarakofafa is unlikely to be realized anytime soon because the area is taken over by squatters.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

58. Rated moderately satisfactory. The Project‘s objectives addressed high-priority issues highlighted in the CAS and I-PRSP. The analytical foundation was solid and almost the entire envelope of resources focused on building effective regulatory agencies and completing the privatization agenda, which ensured adequate focus on two complementary areas of strategic importance and great sensitivity. The long-term economic impact of these two activities is positive. Environmental safeguards were adequately addressed and building upon the PATESP Project ensured continuity in institutional capacity building and implementation support.

59. The appraisal team dedicated significant attention to fiduciary aspects and the risk assessment rightly identified the critical risk elements—including those that would subsequently cause some havoc in implementation—in particular wavering GOM commitment for privatization and introduction of competition (rated high), weak technical capacity of agencies involved in program executing (rated substantial) and resistance of specific local groups to liberalization (rated substantial). While the appraisal team also proposed a number of risk mitigation measures for each risk factor, these were not protecting the Project from new Government priorities. In hindsight, it would have been useful to wait some months for the election to take place to ensure that the Project reflected the key priorities of the new administration. Yet the ownership of the Project may have been limited at the outset given GOM‘s negotiations with the International Monetary Fund and associated conditionality of support.

60. The weaknesses at entry were linked to the causality of some activities and the PDO and outcome indicators; the M&E results framework, which should have been better designed, and the new PSD activities component, which was small and inadequately linked to the original PDO. The ambition was high at entry as the Government sought to leverage the existing momentum but the Project was complex for a country with limited government capacity. Given the substantial risks associated with privatization, there was a high risk that any mitigating initiatives proposed at entry would be insufficient in a crisis.

(b) Quality of Supervision

61. Rated moderately unsatisfactory. The supervision missions were adequately used to provide guidance and to take stock of achievements but the weak M&E framework failed to effectively guide implementation. The records reveal that the supervision teams had a clear appreciation of the issues and provided practical and realistic recommendations on how to move forward. The action items emanating from the supervision documents could at times have been more forceful, in particular since some sub-components failed to perform, and certain key decisions should have been taken earlier. ISR ratings seemingly reflected the achievement of outputs rather than outcomes and this approach may have reduced the incentives for more drastic reform.

62. The mid-term review was an ideal but missed opportunity to take action in reforming and dropping underperforming sub-components. The EPZ sub-component is a case in point: contracts could have been annulled earlier as there were clear indications that parties failed to deliver; and the Project could have cancelled this item entirely at the mid-term review following the outstanding issues—just like the supervision team later did with public enterprises stifled by litigation and land issues (see Annex 2). Nevertheless, the supervision did take several important and bold decisions, including the project restructuring in 2002 and the restructuring of the PIU in 2006. By greatly boosting the new PSD activities component in 2002 and 2005, the team responded to the request of GOM but added complexity to an already very challenging project.

63. The aide-memoires show that supervision was most intense at the beginning of the project and that supervision was limited in 2005-2006 and 2009-2010; the latter period was a result of the Project being under OP/BP 7:30. The supervision could have been more dedicated in 2005-2006, when the Project was in the late, critical stages of the original lifecycle, but the Project benefited greatly from the fact that the TTL was based in Antananarivo for most of the time; thus there was close interaction between the World Bank team and the PIU during the course of the Project.

64. The overall bank performance is rated moderately unsatisfactory given the moderately satisfactory rating (5.1 (c)) and moderately unsatisfactory (5.1. (b)) rating. The Project was politically sensitive and implemented in an environment that was complex to navigate and results were hampered by a lack of Government ownership. In this context, the Project still counted several important achievements. It was technically well prepared and the Project acted swiftly to Government requests and changing conditions despite some unfortunate additions of sub-

25 components that subsequently failed to perform. Looking back, the third component on new PSD activities would probably have been better left to a separate World Bank Project and the performance indicators should have been better designed and applied. Supervision was adequate but uneven in intensity. The Project was arguably allowed to run for too long although implementation was interrupted by political crises at the start and end of the Project. The mid- term review opportunity to thoroughly restructure the project was not made use of but interventions from 2006 onwards show a heightened urgency to focus on results.

5.2 Borrower Performance

(a) Government Performance

65. Rated moderately unsatisfactory. The political crisis that broke out only a few months after board approval had a profound impact on the Project and its ability to achieve its objectives. While the Project was restructured before effectiveness, this ICR has made it clear that the new Government was unwilling, and sometimes unable, to effectively implement the agreed agenda, and that Government ownership in the difficult economic and political environment was low. While it remains unclear to what extent GOM‘s privatization agenda was a response to internal priorities vs. external pressure, the GOM did insist on repeatedly extending the closing date of the Project, which is a sign that it did value the activities. The government report in Annex 7 also highlights that it is fairly content with the Project outcomes given the many challenges. The rating is based on the following main arguments. First, the privatization agenda was reduced in scope and after some early gains in terms of HASYMA and TELMA in 2004, the remaining list of SOEs were never privatized due to political decisions. The PIU was also meant to carry out an extensive public communications campaign in support of the privatization process but GOM insisted on controlling this function and the dedication by ministries was poor.

66. Second, the regulatory agencies OMH and OMERT were strengthened through the support of the PIU but they remain toothless as important decisions are taken by relevant ministries. Thus, the critical issue of allowing these agencies some autonomy to effectively carry out their mandates was ignored. Third, broadening local private ownership was a key goal of the Project. The Government‘s refusal to transfer more than a small proportion of agreed assets to the PTF that was technically in charge of managing this equity process was another sign of a lack of commitment. Fourth, the significant number of creditors whom the Government has yet to reimburse following corporate liquidation is perhaps more a sign of the fiscal crisis lately afflicting the country; but it is nevertheless inconsistent with standard procedures. Finally, the Government did not resolve implementation issues in a timely manner and counterpart funding was disbursed late in the early years, which subsequently led to the Project financing 100 percent of the portfolio activities. These issues impeded the PIU to effectively implement the agenda and achieve development objectives.

(b) Implementing Agency Performance

67. Rated moderately satisfactory. On the positive side, the agency was highly committed to achieving the development objectives. There was plenty of beneficiary and stakeholder consultation although this engagement was partly a result of the nature of the Project and its sub-

26 components of public private dialogue, privatization and liquidation, and trade and investment promotion. There was also seemingly a strong commitment to properly arrange for transition towards the end. Books were kept in order. The head of the PIU prepared a lengthy and detailed account of both failures and achievements. The next generation of reformers will greatly benefit from reading this report. Although the PIU struggled with the resignations of a few key staff members, it was active in recruiting new staff that were adequately trained. In addition, the PIU followed agreed guidelines in the privatization process and paid sufficient attention to detail and procedures, for example in preparing environmental audits and studies.

68. On the negative side, during the first half of the Project, the PIU was a bloated bureaucracy, which slowed down progress and effectiveness. The appointment of a person without M&E experience to be in charge of the M&E framework negatively affected the monitoring and evaluation activities during the first half of the Project. In addition, during the first half of the Project, the lack of timely payments of consultants adversely affected the effectiveness of these consultants‘ work and gave the Project a poor reputation among external experts. While this mismanagement of payments may have been due to the lack of timely disbursements of counterpart funding, it lowers the overall impression of the performance.

69. Overall borrower performance is rated moderately unsatisfactory. This rating is due to the lack of commitment on the part of the Government to take proper action to allow the Project to progress according to existing agreements. Insufficient government attention did not reflect the commitment by the PIU that largely performed its tasks in a timely and professional fashion notwithstanding very difficult political and economic circumstances and a suboptimal organizational structure. As per Operations Policy and Country Service (OPCS) guidelines, overall borrower performance is rated on the basis of the moderately unsatisfactory rating of government performance, the moderately satisfactory rating of Implementing Agency (PIU) performance, and the outcomes of the Project.

6. Lessons Learned

70. This ICR stresses some old but equally important lessons. Some of the lessons are not original but mistakes are repeated because the incentive structure and the political environment in which the World Bank and the client operate seldom change. The ICR recorded how the challenges include: (i) the aversion to decentralize decision making and cede control of public assets; (ii) the risk of reform fatigue; (iii) the inclination to influence staff appointments; (iv) coordination failures between public agencies; and (v) the difficult task of remaining both responsive to evolving client needs and ensuring focus and simplicity in project design. Managing long-term projects successfully in politically turbulent countries requires not only experience and smart project design but also timing and effective public communication.

71. Securing government ownership and commitment are paramount and can never be underestimated. While the Project was substantially restructured to better reflect the priorities of the new government‘s priorities in 2002, it did not go far enough to reengage the new administration to the extent necessary to privatize all companies or empower autonomous

27 regulatory agencies. The experience offers three main lessons. First, it may be advisable to design and agree on a politically sensitive project post-election if an election is imminent in a politically turbulent environment. Second, if there are clear signs of a lack of political commitment—to the extent that several components are performing weakly—a comprehensive adjustment according to the Government‘s agenda may be necessary to get the project on track; tinkering with smaller ad hoc adjustments is less likely to achieve the required momentum. Third, the mid-term review is the ideal opportunity to comprehensively restructure projects. The mid-term review was here a missed opportunity. In addition, securing counterpart funding from the client may be one way of strengthening political commitment.

72. In least developed countries with weak government capacity, simplicity and prioritization are essential in project design. Pleasing all ministries will lower the effectiveness of implementation and the likelihood of success. Remaining attentive to the Government‘s shifting priorities is essential for a good bank-client relation but adding new activities that are beyond the original scope of the project may reduce the chance of successful implementation. For private sector development activities, it is particularly important to only incorporate components that are demand driven from the private sector‘s perspective. Establishing export processing zones, or special economic zones, are particularly difficult in a developing country environment and a five-year project is unlikely to achieve major results in terms of employment and investment unless all conditions are in place and the activity already under way.

73. A coherent and realistic M&E framework that is aligned to the PDO adds clarity, purpose and guidance throughout a project while a weak M&E framework easily becomes a liability rather than an asset in implementation. Leveraging existing databases simplifies data collection. Whenever existing databases are insufficient, developing structured baseline data at the start of the project is essential for consistency. In addition, the analysis of the M&E framework concluded that the use of inflows of private investment is a risky outcome indicator in a country plagued by a high level of country risk (i.e. political uncertainty). The achievement of outcome indicators should be the focus during project supervision since output indicators may be insufficiently linked to results.

74. The development of filters that capture political economy risks in project design, and redesign, would be particularly useful to assess realistic outcomes. It would also allow the World Bank team to look beyond the reform priorities of what is technically relevant and what government requests entail. A critical assessment of what is politically feasible given the political capital of the governing party is likely to help manage expectations and align targets to achievable results. The ICR highlighted that projects with uncommitted clients should not be allowed to run for years beyond the original time plan. If there is a case for a new project, the new design can incorporate recent lessons.

75. The structure of the PIU is essential for effective implementation. Key appointments must be made on a meritocratic basis and not through discretionary appointments. The organizational structure and staffing must reflect the objectives and expected workload: it must be nimble but yet house enough technical expertise. When the organizational structure is ineffective, the World Bank and the Government must take swift action to remedy the situation. While these guidelines are rather obvious, it takes leadership and painful negotiations to get the

28 appropriate team and structure in place. Bloated bureaucracies can be less effective than understaffed ones.

76. Successful privatization is particularly closely linked to establishing a constituency for reform at the political level. An effective communication campaign is paramount in this process and communication campaigns are best controlled by the privatization/implementation agency rather than individual ministries in case there is insufficient ministerial support. The implementation of a privatization agenda may work better if it is part of a broader reform program but this does not imply that the same PIU should be in charge of multiple activities beyond regulatory capacity building and transaction implementation. In case there is strong resistance to ceding of public ownership, alternative initiatives to privatization, such as private management contract, may be a useful option. Liquidation of public enterprises must be swiftly executed since the assets quickly degenerate once employees realize that there is no future for the enterprise. The privatization process should preferably commence only when the Government has removed legal uncertainties, including with regards to taxation (federal vs. provincial). Finally, timely clarity on project extension benefits the PIU since temporary staff need visibility not to seek new opportunities beyond the project.

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Estimate at Estimate at Estimate at Estimate at Appraisal DCA DCA DCA DCA Actual/latest Percentage estimate Components amendment amendment amendment amendment estimate of (US$ 06/05/2003 28/04/2005 14/06/2006 21/12/2007 (US$ million) appraisal* million) (US$ million) (US$ million) (US$ million) (US$ million) 1. Regulatory and Capacity Building (a) Petroleum regulator 4.92 4.82 4.53 3.85 4.55 3.80 77.2% (b) Telecoms regulator 5.00 1.30 1.30 0.72 0.71 0.50 10.0% (c) Civil aviation authority 0.28 - - - - - 0% (d) CFEC 0.64 - - - - - 0% (e) Strengthening of the financial system 0.95 - - - - - 0% TOTAL 11.80 6.12 5.83 4.57 5.27 4.30 36.4% 2. Privatization Implementation (a) Institutional capacity 7.10 4.90 4.96 5.90 6.89 6.63 93.4% (b) Local ownership scheme 0.44 0.35 0.35 0.35 1.02 0.21 47.7% (c) Privatization transactions 8.58 6.88 7.45 7.45 7.45 5.93 69.1% TOTAL 16.12 12.12 12.76 13.70 15.35 12.77 79.2% 3. Development of New PSD Activities (a) OMPE 0.43 - - - - - 0% (b) PSD Strategies in support of PRSP 1.30 - - - - - 0% (c) One Stop Shop (GUIDE) - 1.89 1.36 2.64 5.00 2.77 146.6% (d) Develop EPZs - 3.97 1.17 1.17 1.47 1.25 31.5% (e) Trade and Investment promotion - 1.78 2.20 1.30 1.38 1.15 64.6% (f) African Trading Insurance (ATI) - 0.31 1.25 1.25 1.25 1.23 396.8% (g) Support to the tourism sector - 0.49 0.46 0.46 0.45 0.46 93.9% (h) CAPE / PPD forum - 0.96 1.03 1.12 1.12 1.25 130.2% (i) SME support - - 2.49 2.49 2.49 0.58 23.3% TOTAL 1.73 9.40 9.96 10.43 13.17 8.69 502.3% Total Baseline Cost Physical Contingencies Price Contingencies Total Project Costs

Note: * Actual estimate as a share of first estimate (either at appraisal or when new sub-component was inserted) Source: STP (2011) and PAD.

(b) Financing

Appraisal Actual/latest Type of estimate Percentage of Source of funds estimate cofinancing (US$ appraisal (US$ million) million) Borrower 5.85 3.54 60.5% IDA 23.80 23.24 97.6% Other donors Total 29.65 26.78 90.3%

Annex 2. Outcome by Component

1. The achievement of the main outcome indicator—“private investment in the targeted sectors increased by US$100 million annually from 2004 to 2007”—was difficult to establish because of a lack of authoritative data sources. In addition, this indicator was imperfect because the highly volatile political situation in Madagascar did not lend itself well to the attraction of investment. The PIU broadened the scope and monitored FDI as a share of GDP. In 2002-2005, net inflows of FDI as a share of GDP was relatively low as Madagascar slowly recovered from the twin political and economical crises. It then increased rapidly in 2005-2007 as net inflows of FDI increased from less than 2 percent of GDP to 11 percent of GDP (see Annex 2). FDI reached high levels as two major mining operations—Rio Tinto in Fort Dauphin and Sherritt International Corporation in Ambatovy—developed new mines. However, these investments are not linked to the activities of the Project.

Figure 3. Foreign direct investment, net inflows (% of GDP), 2000-2009

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: World Bank World Development Indicators (2011).

2. In 2009, the rate almost halved from a high point in 2008 when the country plunged back into political turmoil and if the political crisis of 2001-2002 is any indication of the impact on FDI in 2010-2011 and beyond, FDI is likely to have dropped drastically and it is likely to remain low for the foreseeable future. On a sector level, investment in the telecom sector increased in 2004-2007; or from $13 million in 2004 to $120 million in 2007 (see Annex 2). For the petroleum sector, private investment data are not available. The target of annually increasing private investment by $100 million was not met. The period of relative stability during the Project—in 2005-2008—private investment in other sectors than natural resources grew rapidly from low levels. This fact underpins the assumption of the project preparation and design team: that there is huge scope for Madagascar to increase private investment once it manages to develop an economy and political system that are more insulated from political shocks.

I. Telecommunications

3. To what extent did the Project succeed in achieving its PDO of improving access, reliability and affordability of telecommunication services? The data reveal that two of the three

KPIs exceeded their targets and the third KPI was partially met (Table 6). An analysis of more extensive data sources reveals that the Project had a mixed impact on the overall PDO. Access did indeed improve, reliability improved significantly, but affordability, while improved in particular for mobile telephony, remains relatively low. Investment in infrastructure did pick up significantly but only towards the end of the project lifecycle. There is currently only one provider of fixed line telephony (TELMA), two providers of broadband (Blueline and MOOV – a subsidiary of TELMA), and three providers of mobile telephony (Life, Orange, TELMA and Zain). Mobile Internet can also be provided by the mobile telephony companies. The following analysis draws mainly on data collected from the databases of the International Telecommunication Union (ITU).11

4. Access: ITU‘s ICT Development Index (IDI) has a sub- Access (2008) index that measures ICT access.12 It is composed of five indicators Ranking Score that carry equal weight: (i) fixed telephone line penetration, (ii) Indian Ocean mobile cellular penetration, (iii) international Internet bandwidth Maldives 57 4.61 per Internet user, (iv) the proportion of households with Seychelles 64 4.30 computers, and (v) the proportion of households with Internet Mauritius 66 4.19 access. Four of the five indicators (1-iii + v) are good measures Top-3 SSA for the PDO. South Africa 94 3.14 Cape Verde 102 2.77 5. In 2002, the year of project effectiveness, Madagascar Gabon 103 2.71 ranked 125 out of 154 countries. In 2007, Madagascar‘s score had Madagascar increased by 70%—a significant improvement—but its relative Tanzania 137 1.54 ranking had not changed as other countries also improved ICT Madagascar 138 1.47 access. In 2008, Madagascar ranked 138 out of 159 countries: Haiti 139 1.47 slightly ahead of Comoros, Lesotho, Malawi and Mozambique but Bottom-3 SSA somewhat behind Kenya, Niger, Nigeria and Tanzania (see table Guinea 156 1.09 on the right). Thus, Madagascar did not do worse than the average Chad 158 1.02 LDC in the region but that the country has scope to improve Eritrea 159 0.89 access further.

6. Reliability: In 2000, there was a 79 percent annual fault rate for fixed lines and this changed little in 2001 (78 percent). However, in 2002-03, the fault rate dropped to 45-60 percent and by 2006, the fault rate reached 36 percent. Similarly, the share of telephone faults cleared by the next working day jumped from 32 percent in 2001 to 55 percent in 2006. This data are confirmed by consistent anecdotal evidence: all Malagasy consulted during the mission argued that there had been great improvement in reliability during the course of the Project. TELMA argued that current consumption patterns make use of less than 10 percent of telecom capacity and that quality as a result has increased.

11 On the existing regulatory framework in telecoms is far from optimal (yet this assessment is beyond the scope of this assessment). Important measures that have yet to be taken by the authorities are: (i) adoption of Law 2005-03; (ii) replacement of OMERT by the new regulatory agency ARTEC; and (iii) the end of exclusive rights for TELMA, which is still partially state-owned (feedback from peer reviewers). 12 The data draw on ITU (2009, 2010).

7. Affordability: first, connection fees dropped significantly during the course of the project. In 2000, the mobile cellular connection charge and the residential telephone connection charge were US$22 and US$31 respectively. By 2006, the same charges had decreased to US$5 and US$23 respectively. Second, the price for a basket of ICT services (fixed, mobile, internet) dropped during the course of the project but it still remained among the highest in the world (see Figure 5). In 2009, Madagascar ranked 156th out of 161 countries in ITU‘s ICT Price Basket (a lower ranking indicates lower affordability). In the same year, Madagascar had the fourth least affordable fixed line services out of the 161 countries (see Figure 7). This was still a minor improvement from 2008 when it was the least affordable country. TELMA has a monopoly position for fixed line telephony and the reforms have not been successful in allowing market forces to function properly. Voice-over-internet-protocol (VOIP) is eating into the business, copper wire is frequently stolen, and investment in fixed line infrastructure is seemingly not a high priority.

8. For mobile telephony, in 2009, affordability was almost as low: Madagascar ranked 156th out of 161 countries (see Figure 6). In Ethiopia and Senegal, mobile telephony was thrice as affordable while in Bangladesh and Sudan it was 8-10 times as affordable. Finally, for internet broadband, in 2009, Madagascar ranked 149th out of 161 countries (see Figure 8). Broadband was more than ten times as affordable in Bolivia and Sudan than in Madagascar. In Kenya and Zambia, it was five times as affordable. The comparisons indicate that the reforms were insufficient to attain the affordability target. Yet taxation plays a role: according to GSMA, and cited by industry insiders, the tax on total telecom revenue is 45 percent in Madagascar, which is higher than a Sub-Saharan African average of 30 percent.13 For example, Katz et al. (2009) defines Madagascar‘s approach to taxation in the telecom sector as protectionism, service tax maximization and sector distortion.

9. The incumbent, TELMA, which has a monopoly for fixed line telephony, argues that there are significant issues because of certain rules of retailing: loss making telephone booths must be maintained; and business-to-business activity is hurt through a technical loophole allowing fixed line–to-mobile phone calls to be counted as mobile-to-mobile calls. However, for mobile services, TELMA argues that the last years have seen increased price pressure (95 percent of market is pre-paid and it now charges per second), which has resulted in an explosion in penetration/access.

10. Investment: the telecom reforms partly aimed at attracting new private investment in infrastructure and Madagascar did rather poorly in this area during the first half of the project. Investment increased by 50 percent between 2001 and 2003 but from rather low levels. It then started to take off in 2006 (there are no data for 2005). In 2007-2009, the average level of investment in the telecom sector was more than eight times the level in 2001-2003, which probably was impeded by the political crisis. TELMA argues that it has invested more than its business plan had forecast and privatization agreement stipulated. There is now a 6,000 km national backbone of which half is below ground cable and half is fiber optic cable above ground. However, there is only one fiber optic backbone in the country and OMERT manages the wholesale price of capacity; thus the competitors are purchasing fiber optic capacity from TELMA.

13 These figures could not be independently verified by the author.

Figure 4. Investment in the telecommunications sector 1995-200914 120

100 US$ million US$ 80

20 NA 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: World Bank World Development Indicators, ITU databases, author‘s calculations.

II. Petroleum

11. To what extent did PDSP2 succeed in achieving its PDO of improving access, reliability and affordability of petroleum services? Madagascar remains one of the most expensive countries in Africa and the world to fill up a tank of gasoline or diesel. Coupled with the country‘s low income per capita, affordability is low and gasoline and diesel prices have increased significantly during the course of the Project. These increases are attributable to international commodity prices, the level of energy taxation, and the rents enjoyed by some players in the value chain. The price of petroleum is a highly sensitive political issue and there is occasional tension between the private retailers and the Government. This tension has led to both unilateral and bilateral actions involving the Government, for example related to adjustments of the exchange rate, tax policy, subsidies and discussions about price controls and increased public ownership.

12. Since its establishment in 1998, the petroleum regulator OMH has increased its technical competence and hired new talent. In 2010, it had 67 staff members of whom 30 were technicians. According to experts consulted for the ICR, OMH has the technical capacity to regulate and monitor the industry but it is a politicized agency that is perceived to closely follow the orders of the Ministry of Mines and Energy. The regulator does not maintain a continuous dialogue with the private sector but representatives meet whenever there is an issue that needs to be solved. OMH argued during the ICR mission that the Project had provided support in the early years, in particular for the environmental post-liberalization audit of SOLIMA, which took place over four years‘ time starting in 2003. A committee was established to respond to the recommendations of this audit. New construction in the post-liberalization era is well specified and monitored by OMH.

14 For 2004 and 2007-2009 (‗Investment in telecoms with private participation (current US$)‘ retrieved from World Bank WDI). For 1995-2003 and 2006 (‗Total annual investment in telecom (US$)‘ retrieved from ITU databases).

Figure 5. ITU’s ICT price basket in 2009 Figure 6. Mobile telephone price basket in 2009 70 70 Madagascar

60 60

50 50 Madagascar

40 40

basket basket as a % GNI of capita per 30

- ICT Price ICT Basket

20 20

10 Mobile cellular cellular Mobile sub 0 0 2.25 2.75 3.25 3.75 4.25 4.75 2.25 2.75 3.25 3.75 4.25 4.75 Log (GNI per capita, US$, 2008/09) Log (GNI per capita, US$, 2008/09) Figure 7. Fixed telephone price basket in 2009 Figure 8. Fixed broadband price basket in 2009 50 4,000

45 3,500 40 Madagascar 3,000 35

30 2,500

2,000

basket a % as GNI of per capita

- basket as %a GNI of per capita

20 - 1,500 15 Madagascar 10 1,000

Fixed TelephoneFixed sub 500

0 broadband Fixed sub 2.25 2.75 3.25 3.75 4.25 4.75 0 2.25 2.75 3.25 3.75 4.25 4.75 Log (GNI per capita, US$, 2008/09) Log (GNI per capita, US$, 2008/09) Source: ITU (2010), World Bank HDI, author‘s calculations.

Table 6. Telecoms summary Narrative summary Key Performance Indicators Results Comments Telecoms: The number of telephone lines (fixed Target exceeded The achievement was mainly due to the (i) technical assistance to line + mobile) per 100 inhabitants (ITU data) rapid growth in mobile subscribers. The OMERT, (penetration rate) increased from 0.8 2000: 0.8%, 2001: 1.3%, 2002: 1.4% number of fixed line subscribers more than (ii) advisory services to percent in 2000 to 1.5 percent in 2004 2003: 2.1%, 2004: 2.3%, 2005: 3.4% doubled from a relatively low level. design a rural telecom policy 2006: 6.5%, 2007: 12.3%, 2008: 26.2% According to TELMA, there are fewer and funding mechanism; and (OMERT data – reported by PIU) than 200,000 fixed lines in Madagascar but (iii) support of the 2003: 2.0%, 2004: 2.2%, 2005: 3.2%, more than 5,000,000 active mobile phone privatization process of 2006: 6.4% users. TELMA 2007: 12.7%, 2008: 23.3%, 2009: 31.7%, 2010: 43.7%

Internet users increased from 10,000 in Target exceeded (for users, not subscribers) There is confusion in the PAD with 2000 to 40,000 in 2004, and 60,000 in (ITU estimates) regards to this indicator. The indicator 2005; 2000: 30,000, 2001: 35,000, 2002: 55,000 ―internet users‖ does not correspond to the 2003: 70,500, 2004: 90,000, 2005: 100,000 PAD numbers. The PAD numbers 2006: 110,000, 2007: 121,000, 2008: 316,100 correspond to ―internet subscribers‖. There (OMERT data – reported by PIU - probably) are limited data on internet subscribers but 2003: 15,000, 2004: 10,473, 2005: 9,579 PIU indicates that growth has been slow. 2006: 10,742, 2007: 14,244, 2008: 18,141 The M&E matrix by the PIU reports both 2009: 26,292 ―internet users‖ (noting that data are ―not available‖) and ―internet subscriber‖. Telecom services rates will be reduced Target met for mobile telephonyi The price for mobile telephony dropped by by end 2006 in line with the average rate (i) Price of a 3-minute mobile local call 86% in 2000-2006 but still remains very of telecom services of countries in the (Madagascar/10-country average): high. The price for fixed line telephony region facing a level of competition in 2000: $3.19/0.57, 2001: $3.96/0.58, 2002: dropped by 56% but also remains very their telecom sector similar to that of $2.64/0.61 2003: $2.91/0.57, 2004: $3.27/0.62, high. See more under PDO analysis. Madagascar 2005: $0.48/0.70 2006: $0.45/0.68 PIU used Mauritius, Morocco, Senegal and Target not met for fixed telephony Togo as benchmarks. In 2003, PIU noted (ii) Price of a 3-minute fixed telephone local call that a 3-minute phone call in Madagascar (Madagascar/22-country average): cost $0.58 compared to $0.51 in the 2000: $0.41/0.05, 2001: $0.38/0.05, 2002: benchmarked region. In 2006, the $0.27/0.06 2003: $0.36/0.07, 2004: $1.06/0.10, corresponding prices were $0.48 in 2005: $0.19/0.10 2006: $0.18/0.09 Madagascar and $0.78 in the benchmarked region. In 2009, the prices were $0.14 vs. $0.21. PIU‘s price data, while different from ITU‘s data, indicate that the target was met for mobile telephony.

13. There is currently low visibility for further investment due to the political environment. For example, following the political crisis in 2002, Shell delayed new investment until 2007. Since privatization, Galana has invested around US$25 million in a new jetty and more than US$5 million in modernization on top of US$3-5 million/year in distribution. According to industry insiders, the local incentives are attractive for operations but the high country risk impedes new investment.

14. Access: There is currently a single storage facility in Tamatave—by the old refinery— that handles roughly 95 percent of Madagascar‘s petroleum consumption. It is imported through the seaport in Tamatave. This quasi-monopoly enjoyed by Galana GRT means that deregulation remains an unfinished affair. In theory, new storage facilities could be constructed by competitors but there are rules on the national coverage which makes such an expansion unattractive. There are three logistics companies that service the petroleum sector—two of which are controlled by GALANA—and there are logistical challenges related to the single storage facility, Madagascar‘s poor road network, and the long distances, mountainous landscape and limited volume. Galana‘s logistics costs constitute around 7-8 percent of total costs and Shell‘s logistics/distribution costs one-sixth of the import price. There are finally four retailers of petroleum (Galana, Jovenna, Shell, Total) that manage service stations and market petroleum products across the country. A retailer needs to operate a minimum of eight service stations according to the law. Anecdotal evidence points to the fact that there are no queues following the liberalization of SOLIMA.

15. Reliability: There is too little information available to properly assess the developments in terms of reliability—quality and supply—but anecdotal evidence indicates that there is a clear improvement and that the standards of most service stations are high these days. Oil quality is higher; there is more choice and nicer presentation. While OMH monitors environmental performance, the oil companies often have higher standards than those imposed. There are some environmental issues that are yet to be settled for the old refinery, which was closed down in 2004/05. According to the petroleum retailers, the private sector has lived up to its responsibility but the Government‘s environmental work has lagged. However, OMH argued that there are no real environmental concerns—before the liberalization process was implemented they used to have environmental problems in the ports—and that the liberalization process increased the security of supply. OMH also noted that some deliveries have been delayed, for example due to cyclones, but there are never any fuel shortages.

16. Affordability: Malagasy diesel and gasoline prices are some of the highest in the world in absolute terms. In 2002, the year of effectiveness of the project, the super gasoline price in Madagascar was the highest in the 43 African countries measured by GTZ (see Figure 9). At US$1.08/l, it was significantly higher than in the second most expensive African country (C.A.R. at US$1.00/l). In the same year, the Malagasy diesel price, at US$0.65/l, was the sixth highest in Africa. In November 2008, towards the end of the Project, Malagasy diesel and gasoline prices remained among Africa‘s (and the world‘s) highest. The price gap in 2002 between the diesel and gasoline was also almost neutralized. At US$1.43/l, Madagascar‘s diesel price was the fourth highest out of 47 African countries and more than thrice the price in South Africa (see Figure 10). The gasoline price, at $1.55/l, was the continent‘s seventh highest, but below the price in some nearby countries such as Malawi, Mozambique and Zambia. In 2002, the price of 252 l of

gasoline equaled the output per capita of the average Malagasy citizen while in 2008, the price of 318 l of gasoline equaled the average output per capita.15

Figure 9. African diesel and gasoline prices in 2002 Figure 10. African diesel and gasoline prices in 2008*

110 200 Madagascar 100 180 90 160 Madagascar 80 140 70 120 60 100 50 80

40 Super gasoline gasoline Super (US$/l) 60 30 gasoline Super (US$/l)

20 40

10 20

0 0 0 10 20 30 40 50 60 70 80 90 100 110 0 20 40 60 80 100 120 140 160 180 200 Diesel (US$/l) Diesel (US$/l) * Eritrea‘s price is not shown in the chart (diesel: US$1.07/l and gasoline: US$2.53/l) Source: GTZ (2009).

17. The increases in the price of diesel and gasoline in Madagascar were not explained solely by changes in the price of crude oil at world markets and OMH argues that the high price is a serious concern. As Figure 11 illustrates, the crude price was rather stable in the 1990s and so were the prices of diesel and gasoline in Madagascar. As the trend price of crude oil rose during much of the 2000s, the diesel and gasoline prices rose significantly faster, including between 2006 and 2008 when the crude oil price dropped. The cause of the seeming decoupling between the crude oil price on the one hand and the diesel and gasoline prices in Madagascar on the other hand was partly due to taxation policy: as Figure 12 below shows, GOM imposes relatively high fuel taxes as a mean for collecting government revenue but this is not the whole story. OMH argued that the effective rate of taxation was 30-35 percent for gasoline and 20-25 percent for diesel; resulting in a weighted average of around 30 percent. Shell noted that the effective tax rate was 37 percent: 20 percent VAT and 17 percent for the remaining taxes. The storage monopoly and limited logistics options are the obvious areas where competition is limited; and hence rents may be enjoyed by the owners.

15 Author‘s calculations using GTZ (2009) and World Bank WDI (2011) data.

Figure 11. Diesel and Super Gasoline prices in Madagascar vs. International Crude Oil Prices, 1991-2008

160

140

120

100

0 1991 1993 1995 1998 2000 2002 2004 2006 2008

Diesel (US$/l) Super gasoline (US$/l) Price of crude oil on world market (US$/l)

Source: GTZ (2009).

Figure 12. Retail fuel prices in Africa in November 2008 ( US$/liter)

Source: GTZ (2009).

Table 7. Petroleum summary Narrative summary Key Performance Indicators Results Comments Petroleum: Target partly met The output targets—i.e. the Provision of support and 2005: environmental audit for phase I performance indicators—were largely assistance to build the (Historical Audit and Pollution Diagnostic) met but the Government did not capacity of the energy delivered adequately address all the regulator: Conduct an environmental baseline 2006: a committee adopts scenario 3 of the recommendations of the audit. Provision of legal and audit to identify pre-existing audit to develop an action plan to protect and technical advisory services environmental problems encountered minimize risks as needed to: prior to the privatization of SOLIMA 2007: 79% of service stations are cleaned up (ii) monitor compliance in order to assess environmental 2008: The Galana Refinery terminal is with the resettlement impact, identify risk sharing renovated. The expropriation procedures for action plan for squatters arrangements, and propose a the oil pipeline in Tamatave are completed in on the oil pipeline in remedial action plan and risk June. A private company is hired to take care Tamatave; and mitigating measures of oil. (iii) develop 2009: The work on technical specifications environmental regulations, to rehabilitate aqueducts polluted by the and monitor the refinery and other environmental activities application of are suspended due to the political crisis. environmental standards Target met Prospective benefits of this component and regulations; Develop a training program for new A training program for OMH staff was were not realized during the course of officers who will staff the Petroleum approved by OMH management in 2008 but the project and implementation Regulator (OMH) never implemented due to lack of financial progress was not monitored due to resources. insufficient information. Target partly met The market is partly liberalized but The privatization had the following outcome: storage remains a quasi-monopoly, In 2004, new law (#2004-003) adopted for logistics is handled by three Effective liberalization of the liberalization of the petroleum sector and companies, and entry barriers remain petroleum sector according to new decree issued for implementation. relatively high in a small market. law Price for kerosene/gasoline (in MGA) 2005: 1387/1968, 2006: 1630/2400 2007: 1780/2297, 2008: 1873/2819 2009: 1618/2905, 2010: 1750/2970

Component 2: Transaction implementation

18. The second component had three sub-components: (i) capacity building at the Privatization Secretariat (STP) and PASERP to support the privatization process; (ii) increasing local asset ownership through support of PTF; and (iii) providing retraining possibilities through PASERP. The project financed consulting services and covered operational costs of the technical agencies STP, PASERP and PTF. In summary, the Project did strengthen STP and PASERP and help these agencies achieve several of their objectives, in particular PASERP, although STP has been dismantled following shifting priorities of the Government. The sub-component that aimed at increasing local asset ownership through support of PTF did not achieve its objective. PASERP did provide vocational training to a very large number of workers. However, there is little information about the quality of training and number who found a new job.

(i) Strengthening STP 19. (STP was responsible for the technical preparation and implementation of the privatization agenda. The following assessment argues that the Project could have done better but that it acted under extremely difficult circumstances that to a large extent were beyond the reach of the PIU itself.

20. Main achievements: GOM‘s entire divestiture program included 54 public enterprises whereas the PAD covered four SOEs (ADEMA, HASYMA, SIRAMA, TELMA) and thirty public SMEs. Almost all publicly held enterprises were mismanaged and common issues included absence of audited accounts, undeclared assets, high levels of mortgaged debt, ongoing litigation procedures, salary arrears, and negative cash flow and/or bankruptcy. Asset sales began in 1999 and were originally executed directly by the Government. Following the 2002 and 2005 restructurings, the Project provided support to the privatization process of six SOEs of which three companies were executed during the Project (RNCFM Nord, HASYMA, TELMA) and three companies that were not effectively privatized (ADEMA, JIRAMA, SIRAMA).

 Fifteen public enterprises were liquidated as part of the Project: AAA, AFM, ANM, ARS, FEB, CMN, FESA, Forestas, Serdi, Sevima, SIB, Socomi, Somadex, Somalac, Sopraex and Torginol. These companies did not owe any debt to creditors or the income from the liquidation process covered outstanding debt.

 Twelve public enterprises were liquidated but the Government has yet to clear outstanding debt to creditors: Bcl, Famama, Fev, Kafema, Lansu, Roso, Sice, Soama, Sogedis, Somacodis, Somapalm and Sumatex. The amount that GOM owes the creditors amounted to MGA 18.63 billion according to reports issued by the liquidators on December 31, 2008.16 STP executed all necessary steps of the liquidation process in its control.

 Eight records of liquidation were suspended pending the processing of land issues and other disputes: Coroi, Darrieux, Fifabe, Fima, Sinpa, Sorima, Smtm, and some assets of SOLIMA.

16 Data for SOAMA was not available.

21. TELMA: The former telecom monopoly was partly privatized already in 1998 when France Cable Radio (FCR), a subsidiary of France Telecom, procured 34 percent of the company. The Project supported the second round aimed at divesting 34 percent of GOM‘s remaining 66 percent of the company. France Telecom was allowed to participate in the international tendering process under the obligation that it had to sell its shares to the successful bidder unless it produced the highest bid. In December 2001, Distacom Ltd won the bidding process and following the protracted political crisis of 2002, negotiations between GOM and Distacom recovered only by October 22, 2002. France Telecom, which had made the second most attractive bid, brought a complaint to the Supreme Court of Madagascar to seek annulment of the interim award. The Supreme Court dismissed this complaint on February 12, 2003. A purchase agreement was signed on August 26, 2003 and GOM and Distacom agreed to conduct a due diligence of TELMA to assess any developments since the submission of bids in 2001. The due diligence process was expected to close in December 2003 but data collection difficulties delayed this process until March 2004. The auditors hired by Distacom and GOM came to different conclusions: Distacom argued that it had evidence that diminished the value of the company while GOM concluded that there were no major obstacles to closing the deal as originally agreed. The parties negotiated a new deal that was agreed on June 4, 2004, in which Distacom agreed to pay US$12.6 million each to GOM and France Telecom.

22. The negotiation lasted a full year after which GOM granted Distacom concessions that were not in the initial offering. The final agreement was complex and some concessions were unfortunate because they impeded competition, reduced tax revenue, and reduced the scope to realize productivity improvements. The agreement included among others: (i) a government allocation of US$15 million to TELMA over three years for the company's acquisition of hardware and telecommunications equipment for rural areas, (ii) corporate tax exemptions over a five-year period, (iii) a government commitment not to issue any new fixed telephony or mobile telephony license until June 30, 2008, (iv) a corporate commitment to start up a mobile telephony service by June 2007, (v) a government commitment to allocate 4 percent of its shares to staff of TELMA, and (vi) a corporate commitment to not make any staff redundant during an initial three-year period. The lengthy negotiations and concessions did not build confidence in the Government‘s ability to handle the privatization process in a fair and transparent manner. The concessions to Distacom were due to GOM‘s desire to close the negotiations, some of which were to the detriment of development objectives in the telecom industry. In hindsight, it would probably have been wiser to reopen the tendering process.

23. HASYMA: DAGRIS paid US$1.65 million for 51.98% of HASYMA as GOM kept 10% of the capital. The transaction was agreed in August 2004 following an environmental audit completed in February 2004 and an international tendering process with three bidders. Despite some technical difficulties, the transaction closed in October 2004 and the process was largely within the original timeline and regarded a success. The bidders were satisfied with the conduct of the operation and transparency of procedures.

24. Northern RNCFM Network: The contract for the northern concession was signed between GOM and COMAZAR in 2002 but the agreement could not be entered into force until early July 2003 because of some uncertainties of the responsibility of the two actors. A new

43 timetable was established with a committee headed by STP and the divestiture was completed on July 1, 2003, with the creation of the company Madarail. The concession fees amounted to MGA1.18 billion from 2003 to 2009. The PIU was heavily used to sort out post-privatization issues.

In addition, the Project supported some diagnostics for eight additional public enterprises that GOM later decided to not privatize. The return on this investment is therefore largely a sunk cost from the Project‘s perspective but it is likely to benefit other stakeholders in the area in the future.

25. Air Madagascar: a tender for the privatization of Air Madagascar was launched in 2001 but the new Government canceled it during the evaluation process. GOM subsequently signed a management contract on a sole source basis with Lufthansa Consulting for the period October 2002 to May 2006. Since then, GOM has made no decision concerning the outcome of the privatization of Air Madagascar.

26. Sofitrans: a tender for the privatization of Sofitrans was launched in 2001 but GOM canceled this process and no direction has been given for the future status of this company.

27. Society Batelage Manakara (SBM): the company was added to the list of SOEs to be privatized in 2003 as part of the concessioning of the port with the network Manakara Southern RNCFM. A tender was issued by the Ministry of Transport in 2005 but declared void after the opening of the bids. GOM has not decided what to do with SBM although the Department of Transport recently proposed its liquidation.

28. South RNCFM Network: has remained under the administration of RNCFM.

29. Centre Industriel du Bois d'Andasibe (CIBA): a tender dossier for the company producing the wooden sleepers for RNCFM was prepared in 2008, revised in 2009, but the tendering process had not been launched for sale of the company‘s assets.

30. ADEMA: the Project funded the environmental audit of the company and studies on the concessioning of ADEMA were conducted by the Ministry of Transport in 2005 with support from IFC. GOM has not made any decision on the privatization of the company.

31. SIRAMA: GOM owns 72 percent of the company and Sofire, SGR and Sonapar control 28 percent. The company has major financial problems and its industrial and agricultural infrastructure is largely obsolete. For example, SIRAMA does not keep audited accounts and the latest financial statement was produced in 2003. In June 2004, SIRAMA signed a two-year management contract worth 3.6 million euro with Lenferna and Tom & Rey-Sude-MAINTEX for its four production units. The contract was terminated in September 2006. The company retrenched 3,304 employees in 2005-2007 out of an initial workforce of 6,551 employees. GOM took responsibility of the payment of corresponding fees, payment arrears and expenses related to reintegration activities, for a total of MGA 56.7 billion in 1999-2010.

32. The Project funded various studies to a total cost of MGA 1.5 billion in preparation for privatization of the company. A report on options to privatize SIRAMA was presented to GOM in December 2005, including a plan for the financial restructuring of the company. However, GOM has made no decision on the privatization of the company. In 2006 the Project withdrew from SIRAMA following an agreement between the Office of the President, the Minister of Economy and the World Bank. In June 2007, a 20-year lease agreement was signed between GOM and the company Complant for the Ambilobe and Namakia sites following a tender launched by SIRAMA itself. This contract generates an annual income of US$3.5 million and GOM made some payments of wage arrears in these two locations. Overall, the half-hearted attempt by GOM to divest of SIRAMA has been costly and unsuccessful: in 2003-2010, the expenditures amounted to MGA 86.14 billion while revenue amounted to MGA 19.49 billion. Of those expenditures, the Project contributed MGA 2.80 billion to social safeguards measures (MGA 1.6 billion) and studies (MGA 1.2 billion).

33. At project closing, SIRAMA had 700 employees at headquarter and the Brickaville and Nosy Be locations. The total wage arrears of staff were paid by the Ministry of Finance and Budget in December 2009 and it paid MGA 6.84 billion in arrears to SIRAMA‘s creditors in 2009-2010. The staff was laid off from that date although 74 people are hired to maintain services at each site. The factories in Nosy Be and Brickaville that remained under the management of SIRAMA stopped their activities in 2005 and 2007 respectively. In 2010, Complant, the company leasing the Namakia and Ambilobe and locations, produced 37,181 tons of sugar. SIRAMA‘s outstanding debt in November 2010 still amounted to MGA 51.39 billion.

34. JIRAMA: GOM decided in 2003 to evaluate options for reforming the company. In April 2005, the Project co-funded a two-year management contract signed with Lahmeyer International. It also funded several consultants for the implementation of the management contract, audits of performance indicators of the management contract, a task force, and assessments of the implementation of the reorganization plan of JIRAMA. At the time of closing, JIRAMA was still in Government hands.

35. In summary, GOM registered a number of companies on the list of SOEs to be privatized in 1997 but lack a clear decision on its implementation. In the case of SIRAMA, the company collapsed in this lengthy process. Studies that were supported by the Project were repeatedly updated without effective implementation.

36. The main challenges faced by this sub-component were due in large part to the prevarication and change in priorities by the new Government but also to: (i) the legal uncertainty of the divestiture process; (ii) the frequent changes in the institutional setup; (iii) the resignation by two key personnel within STP; and (iv) the insufficient external relations and communications campaigns. STP‘s capacity to effectively implement the original divestiture process was restrained during the course of the project as it struggled to keep up with the original timeline of divestiture. The Project had little limited influence in this process as GOM was in charge of the decision making process.

37. First, during the course of the project, the divestiture of public sector enterprises was largely governed by Law No. 2003-051 enacted on January 30, 2004. This law, which revised

Law No. 96-011 enacted on August 13, 1996, was never decreed. STP helped draft a decree and it also identified a number of anomalies that were never addressed by GOM.17 STP then proceeded with the implementation of the new act without proper instructions on procedural arrangements. Implementation of Law No. 2003-051 in the absence of relevant decrees was a risky process as third parties at any time could challenge the process, which was also highlighted at the investor‘s roundtable discussions organized during the ICR mission (Annex 5). At the time of closing, however, no legal challenge had been recorded.

38. Under the provisions of Law No. 2003-051, STP lost its executive authority to the various ministries overseeing the activities of each public enterprise. For example, the preparatory work undertaken for the ADEMA privatization and the tendering process of the Southern RNCFM Network were carried out directly by the Ministry of Transport. In the case of SIRAMA, the lease agreements for the sugar factories in Namakia and Ambilobe were executed by SIRAMA itself. The operations that remained the responsibility of STP were asset and equity sales, capital increases with waivers of preferential rights of the state, issuing of convertible bonds, liquidations, mergers and demergers. According to the STP Director, the notion of transparency in the new Act was not explicit, which leaves questions open about some contracts.

39. Second, since the privatization process was set in motion in 1996 there have been three changes in the ministerial setup for this process and two changes in technical guidance. In 2002, the divestiture activities were entrusted to the newly established Ministry of Privatization. In March 2003, however, the Ministry of Privatization was dissolved and the divestiture activities were entrusted to the Ministry of Finance and Budget and its Department of Privatization Operations. In January 2004, Law No. 2003-051 formally abolished the Privatization Committee established as part of the previous law (Act No. 96-011) as all divestiture activities were reported directly to the Ministry of Finance and Budget. In 2007, another institutional shakeup within the Ministry of Finance and Budget resulted in the dissolution of the Department of Privatization Operations. Adjusting to these reorganizations affected the speed of implementation of the privatization and liquidation agenda.

40. Third, the Project was off to a rough start in its effort to build capacity at STP. In 1997- 2002, STP had 23 employees that were active in the first major round of privatization. When the Project became effective and its implementation was due to commence in early 2003, it suffered a setback as almost the entire STP team left the institution. Disagreements over payments led to an initial shortage of human capital. Rather than strengthening an institution that was up and running, the first years of the project were to some extent focused on recruiting new staff and training them.

41. In 2003-June 2006, STP consisted of 20 professionals. In July 2006-December 2010, as STP became the Project Executing Agency—in addition to its responsibility of the privatization/liquidation of public enterprises—the institution was down to 10 professionals, partly as a result of the number of transaction being reduced. Key staff members also left STP at times when the Project was coming to a end and before any decision was taken on its extension. STP was thus left with the task of recruiting new staff members at times when it should have concentrated its effort in completing remaining items. While this drive to keep the administration

17 Instead, GOM agreed to launch a study for the establishment of a legal and institutional framework for PPPs.

46 streamlined and nimble may have kept costs low, it also slowed down the divestiture process and the productivity of management. Successive changes in the institutional framework and the management team of STP affected the institutional memory of privatization. The retrenchment and swift reallocation of technical experts within the public administration also led to incomplete archives.

42. Fourth, in 1996-2002, when GOM privatized several large SOEs, it invested significant resources in public communication campaigns. These communication campaigns were discontinued during the Project as GOM indicated that public communication should remain outside STP‘s responsibility. GOM did not renew the contract of the STP manager in charge of public relations and external communication in early 2004. For example, for TELMA and HASYMA, public communication was made directly by the Minister of Finance and Budget. The decision to cut investment in public relations was unfortunate given the sensitivity associated with the transfer of public enterprises to private management. As GOM came under intense pressure from employees and the public to slow down the divestiture process, GOM lost time and resources as redundant and unproductive SOEs were kept in the red. Several of the SOEs that were left in legal limbo are today in very poor shape.

43. With regards to sustainability of STP, at the time of closing, GOM was still to formulate its position on the future of the remaining portfolio of public enterprises, including Air Madagascar, SIRAMA, ADEMA, Sofitrans, Secren, Soavoanio, SBM and JIRAMA. The contractual arrangements between the Project and the liquidators were terminated in December 2010 but GOM had yet to hone the payment of some creditors as of April 2011.

(ii) Strengthening the Retraining Program (PASERP): 44. PASERP is a unit responsible for handling social issues linked to privatization, including the support for vocational training offered to retrenched workers. It was established by Decree No. 97/1242 on October 23, 1998, and located under the Ministry of Finance and Budget. The two main activities of this sub-component were to handle: (i) retrenchment of staff of public enterprises and ensure that dismissed staff received outstanding payments owed to them according to the law; and (ii) implementation of the rehabilitation and retraining program of affected staff. Overall, output indicators were generally achieved despite some outstanding claims. The activities were concluded in June 2008 and a summary of PASERP‘s achievements is presented in Table 8.

45. Some activities were challenging to implement. For example, the railway company had 35 different unions that argued against privatization. Painful negotiations resulted in rather generous conditions for railway workers. SIRAMA was particularly difficult to privatize/liquidate. It took several years to complete and retraining workers, many of whom were analphabets, was not easy. Frequently, the unions had more confidence in PASERP‘s intentions than did corporate management. Thus, PASERP‘s challenge was to play an honest broker and bridge the divide between the workers and management. PASERP‘s offer of credit to retrenched staff who sought to start an own company did not generate many businesses as workers were suspicious about government loans due to negative experiences in the past when workers who failed to repay government debt were imprisoned. According to PASERP, an evaluation in December 2008 of its retraining programs showed mixed results: 30 percent were rated a success

(re-education led to jobs), 25 percent were rated as acceptable (re-education led to some form of jobs), and 45 percent were rated a failure (re-education that largely failed to generate jobs). Many workers in the latter category preferred to go back to rice cultivation as subsistence farmers.

Table 8. PASERP achievements At closing (June 30, 2008) Objective Indicators Target Result Transfer workers from old Personnel evaluation, preparation 846 workers transferred to new companies of transfer process, and execution Transfer 1000 workers from RNCFM to Madarail Dismissal of redundant Audits of Financial Statements, The entire staff made Oversaw the dismissal of workers overseeing the preparation of redundant in the 4866 redundant workers layoffs, pilot for the management companies to be to whom GOM paid wage of redundancies privatized or liquidated arrears Inform affected workers Number of outreach events and Reach all workers of Organized 59 outreach about options and support workers informed privatized or liquidated events and informed services companies 4,383 workers Provide vocational Organization of training 80% of the target group Organized 58 training training workshops eligible to training, or courses covering 4,277 3980 worker individuals Expand support services Number of registered people Entire eligible target 4,334 individuals available to the public group registered Reduce processing time Delay between dismissal and SIRAMA: 5 months; on the basis of four payment of the Reintegration Less than 4 months Ciba: 4 months; months provided in the Fund SMTM: 2 months procedures manual

(iii) Strengthening the Privatization Trust Fund (PTF):

46. PTF was established by Decree No. 96-783 on September 4, 1996. It is a state-owned entity that manages minority-owned corporate assets aimed for future divestiture to local citizens and employees of recently privatized enterprises. As of December 31, 2010, PTF had not been able to play any significant role as it was never allowed to operate by the Government. While it did perform a handful of smaller transactions in the early years of the Project (see Table 9), it has remained in legal limbo. For example, between 2004 and 2008, PTF had neither a Board of Directors nor a Director General. On February 28, 2008, a new Director General was appointed, and the entity was finally staffed in the spring of 2008. The new staff was trained and housed in a building of the Ministry of Finance and Budget. A detailed action plan was also developed.

47. The project supported PTF activities by funding (i) operating expenses (other than staff salaries) from February 2008 to March 2009, (ii) office equipment and computers, (iii) staff training, and (iv) studies and technical assistance. The project had originally planned to fund: (i) the development of PTF‘s Strategic Plan, (ii) the development of implementation manuals, (iii) a financial evaluation of targeted companies, (iv) a sectoral analysis of targeted companies in the telecom and petroleum sector, (v) the development of a communication plan and training plan, (vi) assistance in implementing the strategy and (vii) the procurement of software for this purpose. Except for (i), these activities had not been completed at the time of closing.

48. As of November 24, 2010, GOM had only transferred a very small proportion of the assets to PTF—or MGA 734.1 million out of more than MGA13 billion planned (see Table 9). At Project closing, PTF had transferred a fraction of the assets to the target population. Most of these assets were transferred in 2003. At the time of closing, PTF had finalized its implementation strategy, which was approved by the Ministry of Finance and Budget in early 2010, and it had begun to prepare in-house activities. However, the budget allocated to PTF for the 2011 financial year was insufficient and the Ministry of Finance and Budget did not transfer the remaining assets to PTF. The Project therefore suspended its support of PTF.

Table 9: Assets controlled by PTF Assets transferred Assets to be Privatized Enterprise name following Control of assets to PTF transferred to PTF enterprise privatization GOM PTF Total % Amount (MGA mn) % Amount (MGA mn)

I TELMA TELMA S.A. 22% 6% 28% - - 6% 2,469.4 II HASYMA HASYMA S.A. 5% 5% 10% - - 5% 596.3 III SOMACODIS III-1 Agence Tsi/didy Nlle SOMACODIS Tsi/didy S.A. - 20% 20% 20% - - III-2 Agence Antsirabe Nlle SOMACODIS Antsirabe S.A. - 20% 20% 20% - - III-3 Agence Antsohihy Nlle SOMACODIS Antsohihy S.A. - 20% 20% 20% - - III-4 Agence Mananjary Nlle SOMACODIS Mananjary S.A. - 20% 20% 20% - - III-5 Agence Toliary Nlle SOMACODIS Toliary S.A. - 20% 20% 20% 180.0 - - III-6 Agence Tolagnaro Nlle SOMACODIS Tolagnaro S.A. - 20% 20% 20% - - III-7 Agence Mahajanga Nlle SOMACODIS Mahajanga S.A. - 20% 20% 20% - - III-8 Agence Maintirano Nlle SOMACODIS Maintirano S.A. - 20% 20% 20% - - III-9 Angence Manakara Nlle SOMACODIS Manakara S.A. - 20% 20% 20% - - III-10 Agence Mananara Nord DISCO Sarl - 20% 20% 20% - - - III-11 Agence Toamasina TAMA DISTRIBUTION Sarl - 20% 20% 20% - - -

III-12 Agence Maroantsetra DICOTRANS Sarl - 20% 20% 20% - - - IV SOLIMA GALANA RAFFINERIE TERMINAL IV-1 Lot 1 : Raffinerie Terminal S.A. 10% 10% 20% - - 10% 300.0 Lot 2 : Logistique IV-2 Pétrolière LOGISTIQUE PETROLIERE S.A. 8% 23% 31% - - 23% 4,574.6 IV-3 Lot 3 : Aviation ------IV-4 Lot 4 : Distribution GALANA DISTRIBUTION - IV-4-1 Distribution A PETROLIERE S.A. 10% 20% 30% - 20% 1,020.6 IV-4-2 Distribution B Sté Malgache des Pétroles SHELL S.A. 5% 15% 20% - - 15% 540.0 IV-4-3 Distribution C JOVENNA Madagascar S.A. 1,12% 5% 16,12% - - 5% 644.4 IV-4-4 Distribution D ------2,243.4 IV-5 Après fusion de TOTAL TOTAL Madagasikara S.A. 5,56% 15% 20,56% - - 15% - IV-6 Lot 5 : Lubrifiants MOCO S.A. 5% 15% 20% 15% 156.6 - Lot 8 : Solimotel 377.5 IV-7 Antananarivo MOTEL ANTANANARIVO S.A. - 20% 20% 20% - - IV-8 Lot 9 : Solimotel Mananjary MOTEL MANANJARY S.A. - 20% 20% 20% 20.0 - - V TORGINOL EUROPAINTS S.A. ------VI SODIP SODIP ------Total 734.1 12,388.8 Source: PTF, November 24, 2010.

Table 10. Assets transferred from PTF to target audience

Assets sold by PTF Company to be privatized New company after privatization # of assets Nominal value Transfer Unit price Nation Transfer date transferred (MGA price (MGA Buyer (MGA mn) ality by PTF thousand) mn)

I TELMA TELMA S.A. - - - - -

II HASYMA HASYMA S.A. - - - - -

III SOMACODIS III-1 Agence Tsi/didy Nlle SOMACODIS Tsi/didy S.A. ------III-2 Agence Antsirabe Nlle SOMACODIS Antsirabe S.A. ------III-3 Agence Antsohihy Nlle SOMACODIS Antsohihy S.A. ------III-4 Agence Mananjary Nlle SOMACODIS Mananjary S.A. ------III-5 Agence Toliary Nlle SOMACODIS Toliary S.A. ------III-6 Agence Tolagnaro Nlle SOMACODIS Tolagnaro S.A. ------III-7 Agence Mahajanga Nlle SOMACODIS Mahajanga S.A. ------III-8 Agence Maintirano Nlle SOMACODIS Maintirano S.A. ------III-9 Angence Manakara Nlle SOMACODIS Manakara S.A. ------III-10 Agence Mananara Nord DISCO Sarl 16-févr-04 2 60 1.8 3.6 M. TSARA Jean Frédéric M/sy

M. RAFIDIARISON Jean Rémi ; Mme III-11 Agence Toamasina TAMA DISTRIBUTION Sarl 28-nov-03 8 100 1.0 8.0 M/SY CHRISTELLE Coralie ; Mme NANCYA Laurenne III-12 Agence Maroantsetra DICOTRANS Sarl 25-nov-03 2 60 1,2 2,4 M. Marcel Bernard; M/Sy M. ROBY Patrick

IV SOLIMA IV-1 Lot 1 : Raffinerie Terminal Galana Raffinerie Terminal S.A. ------

IV-2 Lot 2 : Logistique Pétrolière LOGISTIQUE PETROLIERE S.A. ------IV-3 Lot 3 : Aviation ------

IV-4 Lot 4 : Distribution IV-4-1 Distribution A Galana Distribution Pétrolière S.A. ------Sté Malgache des Pétroles SHELL IV-4-2 Distribution B S.A. ------

IV-4-3 Distribution C JOVENNA Madagascar S.A. ------IV-4-4 Distribution D ------IV-5 Après fusion de TOTAL TOTAL Madagasikara S.A. ------IV-6 Lot 5 : Lubrifiants MOCO S.A. ------IV-7 Lot 8 : Solimotel Antananarivo MOTEL ANTANANARIVO S.A. ------IV-8 Lot 9 : Solimotel Mananjary MOTEL MANANJARY S.A. ------Mme RAZANADRAKOTO Marie Baptistine ; M. RAZAFIMAMONJY Jean V TORGINOL EUROPAINTS S.A. 17-janv-03 2,250 20 0.016 36.0 Fidel ; M. RASATA M/sy ANDRIANOME De l‘Ile ; M. RAZAFINDRATSIMA Mamy Nirina Honoré M. Philippe 605 883,4 RAVELOMANANTSOA VI SODIP SODIP 30-nov-99 35,275 21,47 FRF 17,176 FRF M/sy FRF (Délégué des nouveaux acquéreurs)

Source: STP (2011)

Component 3: Development of new activities supporting the private sector

49. The third and final component was a number of activities that were meant to increase the competitiveness of Malagasy companies. While it was a tiny component in the original PAD (at US$1.73 million), it became more prominent (increased to US$9.40 million) following the first restructuring of 2002 as the new Government shifted some of its focus from privatization to activities meant to strengthen competitiveness. The component was divided into seven sub-components: (i) trade and investment promotion, (ii) the establishment of industrial zones, (iii) the establishment of a one stop business facilitation center (GUIDE/EDBM), (iv) provision of trade insurance (ATI), (v) support of the tourism sector, (vi) support of a public private dialogue mechanism (CAPE), and (vii) provision of technical assistance to SMEs.

50. Overall, this component is rated unsatisfactory due to its limited impact of the activities on the competitiveness of Malagasy companies. While the outcome of the third sub- component can be rated as a success, the second, fourth, fifth and seventh sub-components failed to achieve its objectives, and the first and the sixth sub-components‘ contribution are difficult to assess. Most of these initiatives were incorporated following the 2002 restructuring and they were seemingly supply/government driven rather than demand/private sector driven. The Project agreed to incorporate a number of activities requested by the Government seemingly without a strategic vision as there was significant time pressure to launch project activities following the Board approval in August 2001. The Project answered these calls and provided support but the results were limited.

51. It is impossible to properly measure whether the third component achieved its objective of increasing the competitiveness of Malagasy companies. It would require evidence in the form of business surveys conducted at the start of the project and at the closing of the project. In addition, even if comprehensive data had been collected, the limited scope of the interventions would arguably have resulted in an almost negligible impact on the overall private sector. However, the analysis below finds that the transaction costs of starting a business were cut substantially through the establishment of the one stop business facilitation centers (EDBMs). While these results must have benefited prospective entrepreneurs and new investors, they are unlikely to have contributed to the ―competitiveness‖ of existing Malagasy companies.

52. Figure 13 illustrates how new enterprise creation fluctuated throughout the Project. The number of new enterprises grew between 1995 and 2000 but dropped significantly in 2001-2002 as the political crisis hit the economy. The same downward trend is evident for 2009 and 2010. The total number of enterprises is dominated by the establishment of one person enterprises, which fluctuated greatly, and it trended downward following 2004 when GUIDE came into effect. A closer look at one person limited companies (EURL) and limited companies (SA) reveal that they expanded substantially starting in 2004. The former category averaged 98 companies per year in 2001-2005 and 445 companies per year in 2006-2010. The latter category doubled: from an average of 25 enterprises per year in 2001-2005 to 50 enterprises per year in 2006-2010. The number of limited liability companies (SARL) also grew in the second half of the 2000s but the impact was less pronounced as the number dropped in 2009-2010. Thus, in short, formation of various forms of limited and limited liability enterprises increased following the establishment of EDBMs while the number of one person enterprises dropped.

Figure 13. Total number of new enterprises created

22000

20000

18000

16000

14000

12000 Total numbercreatedTotalenterprises new of

10000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

One person enterprise One person limited company (EURL) Limited company (SA) Limited liability company (SARL) Misc

Source: National Institute for Statistics of Madagascar (2011).

53. Trade and investment promotion. This US$1.15 million sub-component supported trade and investment promotion activities to restore investor confidence in the country following the political crisis in 2002. Two main outputs were produced. The first output was a study presented in June 2004 that recommended the establishment of an international investment promotion mechanism. It also included a comprehensive plan for the development of so called ‗business brokers‘. This plan was never implemented partly because of budget reasons and inconclusive recommendations. The second output was a series of trade and promotion activities that covered the production of a brochure promoting the country to investors and in particular the participation of government and private sector representatives in some seventy events, meetings and international forums held in Africa, America, Asia and Europe. In return, seven missions of foreign investors visited Madagascar in 2003-2004 but it is impossible to evaluate the effectiveness of the participation in these trade and investment promotion events. Figure 3 illustrated how FDI was very low in 2002-2004, before it started to pick up in 2005.

54. Export Processing Zone (EPZ) development: The export-oriented garment industry lost an estimated 80,000 jobs during the political and economical crises of 2002. Supporting industry to reinvest and rehire workers was therefore a high priority and promoting the establishment of EPZs became a new sub-component following the restructuring in 2002. The plan was to provide potential investors with facilitated access to land and infrastructure and to support the establishment of EPZs in Tsarakofafa Toamasina, the Antananarivo region, and other provinces. In the end, the Project provided support mainly to the proposed EPZ in Tsarakofafa Toamasina, as it ran into insurmountable difficulties. This planned EPZ was strategically located next to a seaport, town, road network and energy supply and its

53 development was part of the Government‘s decentralization and industrialization agenda. Over the course of the Project, it helped fund: (i) studies related to infrastructure development, prospective clients and target groups, laws and regulations covering EPZs, land tenure and contractual options as well as an environmental impact assessment; (ii) construction of off-site infrastructure worth MGA 1.49 billion to connect the zone with key utilities, including 80 m3/h of water supply, telecom services with a capacity of 512 lines and Internet access up to 256 Kbps, and 160 KVA of electricity; (iii) advisory services; (iv) formalities of land transfer; and (v) property evaluation.18

55. Notwithstanding US$1.25 million worth of support activities, this investment can be considered a sunk cost from the Project‘s narrow objective but there is a lot of industrial activity in the wider area and these activities benefit from the connectivity offered by the investments. During the early years of the project, the supervision missions devoted significant time and effort to record the problems, disentangle the issues, propose solutions, and finance response mechanisms. But governance issues and a long list of challenges impeded progress. At the mid-term review, the sub-component was rated moderately satisfactory despite a zero percent occupancy rate. The original aim was an 80 percent occupancy rate. The rating can only be attributable to a strict focus on output indicators (offsite infrastructure had been delivered). Over the course of the Project, two property developers were contracted but none of them invested in the area. In hindsight, the plan for Toamasina Tsarakofafa was never likely to be successfully implemented. First, the environmental impact assessment had noted problems of flooding and waste treatment and some population displacement. Second, the land was not secured. Parts of the area had already been mortgaged to a property developer called Filatex. Illegal settlers increasingly occupied the dedicated zone area and the Ministry of Education and Scientific Research had built a school on some of the property. The rapidly growing number of squatters made it increasingly difficult to demarcate the area and the contractor hired for this task was chased away by the new inhabitants. Many of these squatters were seemingly not permanent inhabitants but rather rent seekers hoping for financial compensation upon removal. The local Government was too worried to take action about the political implications of forced removals.

56. Third, there was no clear demand for the zone as no potential investors had expressed any formal interest by May 2004. In addition, since 1990, there was another 200 ha zone leased for 50 years by Far East Group adjacent to the proposed industrial park that was not operational and had no industrial tenants. Fourth, there were also a number of contractual irregularities with regards to the concession to the first property developer (GETIM). For example, there was neither a competitive bidding process nor an economic feasibility study involved. There was a lack of clarity and detail in the legal underpinning of the zone and there was no financial due diligence conducted. The public-private partnership model indicated that this sub-component should have been avoided. For example, in GETIM‘s business plan shared by the Ministry, the proposed annual rent of the land (US$0.01/ m2) did not justify the US$1.6 million invested by GOM in infrastructure (water, power line, telecoms) in the area. Consequently, the challenges were overwhelming and this sub- component should have been dropped. The mid-term review team identified several of these shortcomings but stopped short of cancelling this sub-component. Government officials noted that there was a coordination failure between the Provincial and Central Governments and that the ministry in charge was uncommitted to this sub-component. They also noted during

18 Property valued at MGA 6.5 billion.

54 the mission that the WBG team did its best to solve existing problems but that the Government failed to act decisively.

57. One Stop Business Facilitation Center (GUIDE, later EDBM): This sub- component of establishing a single window for investment and enterprise development is arguably the most important contribution of the third component. Created by Decree No. 2003/938 of September 9, 2003, GUIDE was designed as a single centralized institution providing the necessary formalities for starting a company and other services required by investors (visa and work permit issuance, guidance with land titles) as well as promotion activities. The US$2.77 million worth of support of the Project covered (i) the rehabilitation of offices and procurement of material and equipment, (ii) operating cost coverage, (iii), extensive technical assistance, including input in the reforms linked to doing business, and (iv) training activities.

58. In May 2006, GOM established the Economic Development Board of Madagascar (EDBM) to further facilitate entrepreneurship and promote investment. GUIDE was thereafter integrated into EDBM through Decree No. 2007-396 on May 7, 2007. GOM offered an entire 10-storey building to EDBM and the Project agreed to rehabilitate this building to house EDBM. The idea was for EDBM to rent out some of the space to become a more independent and financially viable institution. The Project also provided technical assistance to EDBM in its effort to improve the business climate in Madagascar. It achieved significant results in reducing red tape in the business start up process. Between 2004 and 2009, the number of formalities required for starting a business was reduced from 15 to 2 (see below). This helped reduce the time it took to start a business from 67 days to 7 days and the cost from 59 percent of income per capita to 6 percent of income per capita. The Project was critical in this process as it initiated GUIDE and provided support in EDBM‘s establishment and reform work.

Table 11. Starting a business Cost (% of Paid-in min. capital Procedures Time Year income per (% of income per (#) (days) capita) capita) DB2004 15 67 59 28 DB2005 13 44 57 25 DB2006 11 38 51 2,158 DB2007 10 21 35 373 DB2008 5 7 23 333 DB2009 5 7 11 290 DB2010 2 7 6 207 DB2011 2 7 13 248

59. At the time of project closing, funding of sub-regional EDBM offices had been transferred to the World Bank Integrated Growth Poles Project. The rehabilitation and demolition work had left only three storeys of the Antananarivo EDBM headquarter inhabitable. The doing business reform program was interrupted following the 2009 political crisis and Madagascar dropped on the ranking from 134th in 2009 to 140th in 2010. It is therefore important that GOM takes action to lock in the reforms and achievements and maintains its efforts in promoting investment. A sustainable funding solution is required to support EDBM offices located in the provinces.

60. African Trading Insurance (ATI): Support for this sub-component sought to provide enhanced security to traders and entrepreneurs. The Project funded the fee required to join ATI for a total of US$1 million: US$0.1 million in subscription fee and US$0.9 in a deposit made in 2005. Unfortunately, this insurance mechanism was never used. GOM later requested additional World Bank funds (US$3 million) to increase the ability of ATI to meet the demands of investors but this request was not met. In hindsight, the Project team should have conducted a more thorough demand analysis in order to identify the needs of local businesses and design the insurance mechanism according to their needs.

61. Support to the tourism sector: Support for this sub-component (US$0.46 million) was aimed at providing enhanced administrative support through Regional Tourism Offices and help prospective investors to get access to land. Potential tourism sites were demarcated in Anakao, Beheloka and Soalara in the province of Toliara and the Project funded development plans. The Ministry of Tourism in partnership with EDBM was responsible for the promotion of these sites to potential investors. The sub-component did not produce any results and the Project dropped its support in June 2006 as squatters had invaded the demarcated sites.

62. Establishing a public private dialogue mechanism (Comité d’Appui au Pilotage de la relance de l’Entreprise, CAPE): This US$1.25 million sub-component encouraged public-private dialogue after the political crisis in 2002. CAPE was chaired by the Prime Minister at the national level. It had an executive secretary and permanent secretariats with fully equipped offices in several cities, which created a parallel structure to the existing Chamber of Commerce offices. CAPE hosted two national and several regional meetings, in particular on trade facilitation, the Finance Act of 2004, the draft Competition Act, and the draft Companies Act. The private sector side was dominated by large enterprises and multinationals, which made SMEs lose interest. The largest companies already had the ear of the authorities and the value of CAPE was diluted.

63. CAPE funded various studies and SME training activities on the filing of credit reports, business management, standards and quality. According to the client, the quality of the consulting reports and studies varied but the recommendations were generally not implemented, which reduced the private sector‘s interest in this dialogue mechanism. The sub-component was closed in June 2006 and the impact of this dialogue mechanism is impossible to measure; in particular since the recommendations and outcome of the dialogue initiatives were not all recorded and filed. The scope of the activity was vague, which affected the focus of studies and training courses, and it allowed unnecessary discretion in the activities. Boosting public-private dialogue was, and remains, important. Working through existing mechanisms—the Chamber of Commerce is for example represented in all of Madagascar‘s regions—may have been sufficient although this institution was closed during the period. CAPE does not have any remaining staff members.

64. Technical Assistance to SMEs: This sub-component supported the SME Solution Center (SSC). A contract for provision of technical assistance to SMEs was signed on September 5, 2005, between the Ministry of Finance and Budget and Business Partners International (BPI). The contract was for an amount of US$2.0 million and a period of eight years during which BPI would provide technical assistance to local SMEs. The activities of BPI started in the middle of 2007 and were adversely affected by the political crisis starting in 2009. A total of 42 SMEs had benefited from technical assistance at the closing of the project compared to a target of 75 SMEs. BPI made use of US$475,000, or US$11,300 per

SME, in its activities. While the impact of the investment may have been positive for the beneficiaries—business associations representing SMEs that were consulted during the ICR mission did indeed give positive feedback—few companies were reached. The overall impact on the economy must have been limited although individual SMEs may have benefited greatly. As in some of the other sub-components, a more thorough needs assessment and design of the support mechanisms could have helped this initiative produce more concrete results.

Annex 3. Economic and Financial Analysis

1. No Cost Benefit Analysis or Economic and Financial Analysis were prepared at the Project design stage. The PAD noted that the support provided under the project was to “serve as a catalyst to create an environment sufficiently conducive to attract first class management and technology know-how, and significant capital investments”. These investments were expected to bring considerable economic benefits that could be measured in terms of: (i) increased output from new entrants and privatized entities; (ii) factor cost savings resulting from competition between operators and better managed companies; (iii) additional income from net job creation; and (iv) consumer surplus. As the project support was considered catalytic, the above mentioned benefits were not considered a direct result of the project. This ICR did not attempt to quantify the gains given the lack of starting point estimates to measure efficiency against.

2. While the cost of the interventions were well defined at project preparation and well accounted for at project closing, the prospective or realized benefits of the new institutional and regulatory capacity are linked to a host of environmental, governance, social, and economic factors. The intangible non-economic gains will be substantial in the long run. Table 12 provides an overview of both tangible and intangible gains and positive outcomes from the Project activities.

3. The interventions in the Project were closely associated with PATESP, which makes it difficult to disentangle the income and expenditure and accrue them to the activities of the two projects over time. For example, several of the transactions in the privatization process were initiated and partly executed in PATESP and the Project finalized this process. The same holds for the institutional capacity building interventions of regulators: these regulatory agencies had already been established in PATESP but were admittedly weak and considerably strengthened in the Project. Thus, the costs and benefits are linked to two generations of projects.

4. Annex 1 presents a cost breakdown by component and sub-component. It reveals that the initial estimates in the PAD for supporting OMERT and OMH were greater than necessary, in particular for OMERT. The first component consumed only 36 percent of the resources initially allocated. The second component, of privatization implementation, made use of 79 percent of the appraised funds. For privatization transactions, the Project made use of 69 percent of appraised funds, which reflects the fact that the new Government lowered the ambition and removed SOEs from the privatization list. Some of the non-performing sub- components such as PTF and the development of EPZs did not generate any return on investment but disbursement was reduced and eventually stopped as there were few signs of progress.

5. According to STP, in 1999-2010, the total cost of the privatization process was MGA 107.8 billion and the total income was MGA 118.5 billion—resulting in a small but positive balance of MGA 10.7 billion. Thus, the overall direct financial return on investment of the Government‘s privatization and liquidation agenda was very limited indeed. By far the largest cost component in this process was compensation to retrenched employees (MGA 77 billion). Of the total income, roughly MGA 67.5 billion was generated during the Project‘s effectiveness, in 2003-2010, and the cost was an estimated MGA 18.2 billion (see Annex 6). The second tranche of the TELMA privatization generated a large surplus in 2004 (see Annex 2). The liquidations of ROSO, SINPA and SOMACODIS generated large surpluses.

6. A net present value (NPV) calculation is possible for the privatization and liquidation process. First, assume that expenditures and incomes were all realized at the year when the income was recorded in Annex 6. Second, assume that expenditures and incomes for public enterprises that were partial or suspended (the lower half of Annex 6) were recorded evenly over the years 2008-2010, then the net present value for the privatization and liquidation process starting in 2003 was:

. MGA 44.5 billion for a discount rate of 5 percent. . MGA 39.0 billion for a discount rate of 10 percent. . MGA 33.9 billion for a discount rate of 15 percent.

7. However, these calculations do not take into account US$3.9 million of expenditures of the Privatization Secretariat (STP). Thus, the NPVs above only reflect a limited set of direct expenditures but all the direct income generated from the process.

8. The privatization of these companies did attract new investments but data are not readily available. Some of the companies were insolvent pre-privatization and new investment would most likely have been wasted without new management. Post-privatization and new investment, companies in for example the telecom sector and petroleum sector upgraded technology, processes and management, which led to revenue growth and taxable income, a larger consumer surplus, etc. Data on corporate revenues pre- and post- liberalization were not accessible but it is a reasonable assumption that the long-term benefits of equipping these companies with a new set of performance-based incentives would be substantial.

Table 12. Gains from the Project

Activity Gains / outcomes Enhanced regulatory  More stringent environmental standards in the energy sector capacity  Higher quality standards enjoyed by consumers in telecom and energy Liquidation of public  Assets tied up in loss making enterprises put to more productive private use enterprises  Government resources saved from cuts in subsidies Privatization of state-owned  Enhanced competition and innovation promotion enterprises (i.e. large public  Government income from the sale of assets and higher potential tax income enterprises)  New private investment to enhance accessibility and reliability  Government resources saved from cuts in subsidies Establishment of the One  Reduction in transaction cost at entry Stop Shop and other new  Reduction in information costs PSD activities  Enhanced visibility and investment promotion

9. Implementation efficiency was negatively affected by the political crises, which produced new administrations, of which the first was significantly less committed to the privatization process. According to STP estimates, government indecision on privatization led to MGA 56 billion spent on studies and legal fees for the eight SOEs that were never privatized (see Component 3 in Annex 2). While the Project only covered a modest proportion of these expenditures, and some of these investments may have been value for the companies at large, they did not help achieve the objectives that they were meant to do. In conclusion, at least for component 2, implementation efficiency was seemingly low given the lack of government commitment to execute the privatization process.

10. Finally, there were significant implementation delays that to a large extent were caused by the two political crises, the lack of government commitment to the privatization agenda, and slow payments of arrears to creditors (by Government) and consultants (by PIU). More than eight years passed between project effectiveness and project closing. An earlier closing date, as originally planned, would have allowed the Government and the World Bank to assess the cost and benefits of the achievements, and design a new follow up Project that would better have reflected the Government‘s priorities and start without the legacy of the original Project.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Responsibility / Name Title Unit Specialty Lending Demba Ba Sector Manager AFT Mourad Belguedj Lead Energy Specialist COC-Oil Oli and gas Javier Burgos Transport Yann Burtin Operations Officer CIT Telecoms and ICT Amy Champion Program Assistant Program Assistant Judite Fernandes Language Program Assistant Project documentation Michael Fowler Disbursement Officer Disbursement officer Olivier Fremond Capital markets development Serigne Omar Fye Sr. Environmental Specialist AFT Environment Simon Gray Lead Country Officer ECC-ECA Peer reviewed Kristin Ivarsdotter Sr. Social Development AFT Social Specialist Specialist Andres D. Jaime Sr. Financial Specialist ECSPF Chad Leechor Sr. Economist AFT PSD Ying Liang Sr. Information Management Telecoms and ICT Specialist Paul Noumba Sr. Telecoms Specialist CIT Telecoms and ICT Bienvenu Rajaonson Sr. Environmental Specialist AFTEN Gervais Sr. Financial Management AFTFM Financial management Rakotoarimanana Specialist Sylvain Rambeloson Sr. Procurement Specialist AFTPC Procurement Onno Ruhl Lead PSD Specialist AFT PSD Marie-Ange Saraka-Yao Senior Financial Officer TTL Edgar Saravia Lead PSD Specialist MNC- PSD, regulation, peer MNA reviewer Maryanne Sharp Operations Analyst AFC Raj Soopramanien Sr. Counsel LEG Legal counsel Amadou Tidiane Toure Sr. Procurement Specialist AFT Cecile Wodon Language Team Assistant AFT Project documentation Irene S. Xenakis Lead Specialist AFT Supervision/ICR Jean Charles Amon Kra Country Officer AFCRI Volana Andriamasinoro Program Assistant AFMMG Mission support Saholy Sr. Program Assistant AFCO8 Mission support Andriambololomanana Landy Frank Driver Andrianjatovo Sandrika Minah Ateifa Team Assistant AFCO1 Mission support Slaheddine Ben-Halima Consultant AFTFE

Responsibility / Name Title Unit Specialty Laurent Besançon Sr. Regulatory Specialist CIT Telecoms Jyoti Bisbey Operations Analyst FEUFS Mazen Bouri Sr. PSD Specialist AFTFE Michael Engman Economist AFTFE ICR author Jean Paul Feno Safeguards Specialist AFTS1 Safeguards Marc L. Heitner Consultant Sidonie Jocktane Program Assistant AFTFP Mission support Amadou Konare Sr. Environmental Specialist AFTEN Isabel Neto Policy Specialist ICT Eavan O‘Halloran Sr. Country Officer AFMMG Noroarisoa Sr. Transport Specialist AFTTR Transportation Rabefaniraka Ellena Rabeson Operations Officer AFMMG Aminur Rahman Sr. Investment Policy Officer CICRS Gervais Sr. Financial Management AFTFM Financial management Rakotoarimanana Specialist Nathalie Ramanivosoa Team Assistant AFMMG Mission support Sylvain Rambeloson Sr. Procurement Specialist AFTPC Procurement Liliane Randrianarivelo Accounting Expert Consultant Financial management Vohangitiana Rarivoson Consultant AFMMG Mission support Ganesh Rasagam Sr. PSD Specialist AFTFE PSD Lova Ravaoarimino Procurement Specialist AFTPC Procurement Josiane Raveloarison Sr. PSD Specialist AFTFE PSD, TTL Fanja Ravoavy Operations Officer FIAS Ann Christine Rennie Lead Financial Sector AFTFS Specialist Ivan Rossignol Sector Manager AFTFE PSD, TTL Claude Sorel Sr. PSD Specialist AFT PSD William F. Steel Consultant AFTEG

(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ thousand (including No. of staff weeks travel and consultants) Lending FY00 14.03 43.7 Total Supervision/ICR FY01 87.6 FY02 38.5 FY03 68.0 FY04 139.4 FY05 91.7 FY06 77.7 FY07 54.6 FY08 76.4 FY09 42.6 FY10 56.9 FY11 59.5 (update) Total 792.9

Annex 5. Beneficiary Survey Results

1. A roundtable discussion with a small group of Malagasy investors was organized during the November 2010 ICR mission. The focus of the discussion was to get a better understanding of how the privatization and liquidation process had been received by local investors—in particular with regards to transparency, openness and fairness.

2. The investors had all taken part in the divestiture process and the group echoed the messages of STP that most of the public assets were in bad shape. A lack of competition, a poor business environment and legal uncertainties were their main concerns as business leaders. Some public assets were split up according to their regional locations, which facilitated participation in the bidding process by smaller domestic investors. The main initial concern of the investors was their negative experiences of the liquidation and privatization process first undertaken in 1996. They argued that the Government had sold some assets, collected the money, but then refused to cede control of the assets. While the Government has hitherto failed to pay several creditors of liquidated companies, the roundtable participants did not have the same negative experience in the 2000s.

3. The group argued that the sale of assets had been sufficiently open, transparent and equitable. Assets were advertised in journals and prospective investors could buy the bidding documents for a low price. While the divestiture process in the 1990s had been awarded to the highest bidder in a single round of bidding, the 2000s divestiture process was organized as an auction. This revenue maximizing mechanism was much disliked by the investors as it lowered their chances to strike bargains—although acquired assets had to be held for a minimum of two years by the new owner. They also complained about the 20 percent VAT that was collected on the winning bids. It was noted that there was some legal uncertainties associated with the implementation of the privatization law but it had not stopped the process.

4. The group also argued that the committee established by STP and the Government had followed rules ―on the dot‖ in the auctions they had participated in: envelopes were opened in the public and offers could be rejected if the bidder failed to comply with all conditions. They noted that the President had taken part in the auctioning of one asset and all competing bids had been rejected due to provision of incomplete information. There were complaints related to the Government‘s failure to live up to some of its promises to clear all outstanding arrears as one investor mentioned that she had had to pay tax arrears to the local tax office in Mahajanga Province for a property she had acquired in an auction (yet it was not clear as to whether there was any fault of the Government in this case). There were also some concerns raised that some of these cases had been properly settled by the authorities while others remained open.

5. Another investor has a bad experience in acquiring land previously held by SOLIMA. Following the purchase, he learnt that the company lacked proper title to parts of the land, which put the property in legal limbo, and the situation was made worse due to the perceived corruptibility of the land titling office. This was apparently not the only situation where STP auctioned land without proper title. In addition, the investors noted that the divestiture of SOLIMA had been perceived as less transparent than the other assets. It was unclear, however, whether these issues occurred in PATESP or PSDP2.

6. Finally, the roundtable participants argued that the divestiture process could be improved in the future if: (i) remaining legal uncertainties about the implementation law were

64 removed, (ii) the application of rules and tax arrears was more consistent, and (iii) political involvement and conflicts of interest were tackled. Everybody agreed that political ownership and meddling had destroyed too many national assets.

Annex 6. Privatization transactions supported by the Project in 2002-2010

N° Company Sector Year completed / Total income Income in Cost* Mode Acquirer situation at closing [MGA 2003-2010 [MGA thousand] thousand] [MGA thousand] 1 RNCFM Railways Northern network 0 0 76,513 Concession Madarail completed in 2002; southern network never done 2 HASYMA Cotton 2004 3,412,200 3,412,200 1,073,037 Sale of shares DAGRIS 3 TELMA Telecom 2004 24,647,899 24,647,899 2,023,486 Sale of shares DISTACOM 4 SOLIMA Petroleum Assets privatized 51,220,847 9,258,636 7,509,565 Transfer of assets Jovenna, Total, Shell, Galana, Moco, Logistique pre-2002; liquidation and liquidation Pétrolière ongoing 5 AAA Hydro-agricultural 2008 210,989 210,989 39,530 Liquidation Raherinirina Christian, Tilahizandry, Ratsimandresy, network Amin Hadjee, Rabotso Desiré, Sté ETEMAD, Rakoto Harivelo, Rafaramalala, Randrianatoandro Dieudonné, Rabarison 6 AFM Slaughter house 2008 120,000 7,591 Liquidation IDF 7 ANM Slaughter house 2008 73,599 7,591 Liquidation Mahommed 8 FEB Coffee 2008 16,164 Liquidation Randrianarijaona Harson Théophile 9 FESA Farming 2008 48,815 48,815 17,504 Liquidation Fety Alain Patrick, Rabemanantsoa Rado, Rakotovao Noelison, Manjakavelo 10 SOCOMI Industrial 2008 6,518 Liquidation maintenance, metallurgy 11 FORESTRAS Drilling and 2009 5,817 Liquidation exploration 12 SEVIMA Cannery 2009 3,000 4,080 Liquidation Rakotoarisoa Mamiarinjaka 13 SOMALAC Agricultural 2009 6,933 6,933 7,999 liquidation Silac, Andriamanja kamahery Edouard, Ranaivo development Samuel, Rajaobelona Lalaina, Razafindrazaka Jacques, Rakouth Barirandrana 14 SOPRAEX Medical plants and 2009 6,518 Liquidation essential oils 15 ARS Land transport 2010 477,735 477,735 7,591 Liquidation Aremec, Sodiat, Ramamonjisoa Benjamin, 16 CMN Maritime transport 2010 7,999 Liquidation 17 SIB Wood industry 2010 292,000 292,000 5,817 Liquidation Ste Mellis, Ste Vidzar 18 SERDI Design office 2010 7,591 Liquidation 19 SOMADEX Mining 2010 7,999 Liquidation 20 TORGINOL Paint and 2010 444,872 5,817 Liquidation derivatives 21 BCL Dairy Pending payment of 13,547 Liquidation creditors

N° Company Sector Year completed / Total income Income in Cost* Mode Acquirer situation at closing [MGA 2003-2010 [MGA thousand] thousand] [MGA thousand] 22 FAMAMA Cashew Pending payment of 833,000 7,999 Liquidation Rabetso D. Bemanana Remi, Rasoanadrasana Nasolo creditors Meltine, Harilala Kalidas …. 23 FEV Farming Pending payment of 16.164 Liquidation Raharimalala Edwige, Ramanadraibe Charlotte, creditors Ranivohelisoa Henriette, Ramiliarisoa Christine, Ralinivo Jeanne, Tsaboto Roger 24 KAFEMA Coffee roasting Pending payment of 500,700 500,700 19,418 Liquidation Sté SIM, Cnaps creditors 25 LANSU Lobster finishing Pending payment of 4,000 13,547 Liquidation Wuchao Ying Wa Christian creditors 26 ROSO Trading and Pending payment of 7,245,086 7,245,086 157,013 Liquidation TIKO, Ramimpex, Fiavama, Sodiat, Rafidisaona distribution creditors Nodier, Manesor, Solofo Mandimbisoa, Manantsara, Rabenatoandro Lantoniaina 27 SICE Trading and Pending payment of 352,320 33,769 4,080 Liquidation Charline Li, Fidhahoussen, Ho Sai Thion, distribution creditors Ramarosandratana Guy, Andriamasinoro Haja, Mahomed Hassan, Rajaonary Estein, Herinirina Patricia, Sahrabano, Rafidisaona Nodier 28 SOAMA Agricultural Pending payment of 40,404 Liquidation development creditors 29 SOGEDIS Trading and Pending payment of 202,650 7,591 Liquidation distribution creditors 30 SOMACODIS Trading and Pending payment of 5,474,629 3,186,765 70,592 Liquidation Claudette Aimée, Ernestine, Jao Manjary Amady, Ets distribution creditors Nivoniaina, Jean Balbine, Ida François, TIKO, Sté Transmaika, Sté Alma, Magro, Rafidisaona Georges, Rakoto Jean Paul, Charline Li, Tadahy Huga, 31 SOMAPALM Palm grove Pending payment of 13,547 Liquidation creditors 32 SUMATEX Textiles Pending payment of 821,000 821,000 5,817 Liquidation Mozize creditors 33 SIRAMA Sugar Ambilobe & 12,918,290 12,918,290 1,245,370 Private lease Complant in Ambilobe and Namakia Namakia on 20-year contract management contracts signed in June 2007. Nosy Be & Brickaville establishments pending 34 ADEMA Airport management Suspended 149,645 Undefined 35 COROI Trading and Suspended 1,931,755 810,000 177,954 Liquidation Claudette Aimée, Michel, Rafidisaona Georges, TIKO distribution 36 FIMA Land transport Suspended 365,000 7,591 Liquidation Compagnie Vidzar 37 DARRIEUX Trading and Suspended 1,548,888 1,358,339 4,080 Liquidation Sté SIMMA, Hassim Zhora Kathoune, TIKO, Rakoto

N° Company Sector Year completed / Total income Income in Cost* Mode Acquirer situation at closing [MGA 2003-2010 [MGA thousand] thousand] [MGA thousand] distribution Jean Paul, Charline Li, Seraly Sahrabanou, Razafimbelo Christian Yolande 38 JIRAMA Water and Suspended 4,852,184 Management Lahmeyer International (2005/03 – 2007/03 electricity contract 39 SINPA Trading and Suspended 3,522,416 2,306,863 189,354 Liquidation Arline Marthurine, Fernand Jeannot, Kolotsara, Sté distribution SIM, Sté ITD, TIKO, Sylvain Rambelo son, Dennemont, Moustapha Abdou, Goulamaly Nazar, OTIV DIANA, Rasolondraibe Christophe… 40 SMTM Maritime transport Suspended Liquidation 41 Air Air transport Never conducted 355,052 Management Lufthansa Consulting (2002/10 – 2006/05) Madagascar contract 42 SBM Shipping Never conducted 2,153 Undefined 43 SOFITRANS Catering, duty free, Never conducted Undefined hospitality TOTAL 118,459,675 67,529,086 18,216,584

Source: STP (2010; 2011). * The Project also covered some minor arrears remaining from PATESP on Toly in 2004 and SEVMACAM in 2003.

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR

The report: “Contribution de l’état Malgache au Rapport de Fin d’exécution et de Résultat du PDSP II Prépare par la Banque Mondiale”, was submitted to the ICR author on May 10, 2011.

Le PDSP II ou « Deuxième Projet de Développement du Secteur Privé » (ci-après le « Projet ») est le prolongement du PATESP ou Projet d‘Appui Technique au Secteur Privé. Signé en octobre 2001, il est entré en vigueur au mois de novembre 2002. Le Projet vise à permettre au Gouvernement de Madagascar (i) d'améliorer l'accès aux principaux services publics, d'en accroître la fiabilité et d'en réduire le coût et (ii) de stimuler la compétitivité des entreprises malgaches. Bien que l‘Accord de Crédit ait été amendé 7 fois, et les activités revues et corrigées à plusieurs reprises, les objectifs du Projet sont restés les mêmes.

Mis en oeuvre entre deux crises socio politiques majeures, celle de 2002 et celle de 2009, le Projet a donné des résultats raisonnablement satisfaisants. Les principales réalisations gravitent autour des activités liées aux indicateurs suivants : augmentation des investissements privés dans les secteurs ciblés, amélioration de l‘accès à des services fiables, abordables et de qualité dans le secteur des télécommunications. L‘état d‘avancement du programme de liquidation est également très appréciable. Les principales lacunes relevées concernent tant la structure de mise en oeuvre que les modalités d‘exécution de certaines activités du Projet.

Si dans sa conception initiale, le Projet devait être sous la tutelle d‘un Ministère unique en charge du développement du secteur privé et de la privatisation, à l‘issue de la crise politique de 2002 ce Ministère a été dissout et ses attributions réparties entre celui chargé des Finances pour la privatisation, et celui chargé de l‘Industrie et du Commerce pour le développement du secteur privé. Ce changement institutionnel a impacté l‘opérationnalisation du Projet, dans la mesure où les deux agences d‘exécution (ci-après les « AGEX ») ont dû entretenir une relation directe avec leur Ministère de tutelle respectif, tandis que l‘Unité de Coordination du Projet a vu son rôle devenir superflu. La structure d‘exécution, devenue complexe et inadaptée, n‘a toutefois été modifiée qu‘à la suite de la restructuration de 2006.

Concernant l‘exécution du Projet, un certain nombre d‘activités n‘a pu être mené à terme suite à la décision de la Banque Mondiale de suspendre son financement du fait de la crise sociopolitique de 2009 : ces activités concernent aussi bien des activités de liquidation d‘entreprises que relevant du développement du secteur privé.

Des activités, notamment dans la Composante Secteur Privé, n‘ont abouti faute de meilleure préparation et de concertation entre l‘Administration et les responsables du Projet. L‘échec dans la mise en place « l‘Export Processing Zone » (EPZ) de Tsarakofafa malgré les investissements réalisés dans les infrastructures (eau, électricité, téléphone), en est le cas le plus marquant. De même, aucune entreprise malgache n‘a pu réellement tirer profit de l‘adhésion de Madagascar à l‘African Trading Insurance (ATI).

Concernant la performance du Projet, le Programme de Désengagement des principales entreprises publiques a été appréciable malgré la suspension du processus de privatisation dans le

69 secteur aérien (cas d‘Air Madagascar et d‘ADEMA) ou la tergiversation de l‘Etat sur le cas de la SIRAMA. Les résultats dans le cadre du volet développement du secteur privé, sont d‘un autre côté plus mitigés. Hormis les réalisations dans le cadre de l‘amélioration des indicateurs doing business, les activités n‘ont pas abouti à des avancées notables. D‘autres réalisations acquises en cours de projet ont été perdues du fait de la crise de 2009 (AGOA, confiance des investisseurs, qualité de l‘environnement des affaires, etc.).

1. Analyses et commentaires par composante :

1- Composante 1 : Renforcement des capacités des organes de réglementation. a- Secteur Pétrolier Les interventions dans le secteur pétrolier ont permis de libéraliser le secteur et de garantir la fourniture des produits pétroliers aux consommateurs. Suite à la privatisation de la SOLIMA en 2003, la Loi n° 2004-003 a été sortie en juin 2004 portant sur la libéralisation du secteur pétrolier. Cette loi a été suivie par un Décret d‘application n° 2004-669 la même année. La vérité des prix des produits pétroliers à la pompe a pu ensuite être appliquée. Un audit environnemental a été réalisé en 2005, et a abouti à l‘élaboration d‘un plan d‘action de mise en place des mesures de protection et mitigation des risques, la remise aux normes des 79% des stations-services dans l‘île. Le renforcement des capacités des agents de l‘Office Malgache des Hydrocarbures (OMH), dans la formulation des règlements techniques et économiques, et de surveillance des risques environnementaux, n‘a pas été effectué faute de budget, suite à l‘amendement du projet. b- Secteur Télécommunication Des activités ont été prévues dans ce secteur, mais elles ont été amendées sans avoir jamais été mises en oeuvre. Il s‘agit des activités de renforcement de capacités des agents de l‘Office Malgache d‘Etudes et de Régulation des Télécommunications (OMERT), et la gestion de fréquence. Seule la téléphonie rurale a pu être lancée, mais sa coordination a été pilotée par l‘ex- Direction Générale de la Technologie d‘Information et de Communication du Ministère chargé de la Télécommunication, au lieu de l‘OMERT.

2- Composante 2 : Mise en oeuvre des transactions de privatisation a- Secrétariat Technique à la Privatisation STP Le STP a joué un rôle important dans la gestion des opérations de privatisation des entreprises publiques. Malgré la complexité du processus de privatisation, le STP a pu atteindre plus de 72 % des opérations de privatisations. Le renforcement des capacités de l‘équipe (recrutements, formations) a également beaucoup contribué à cette performance. Le STP a repris la coordination après la suppression de l‘Unité de Coordination du Projet (UCP) à partir de 2006. Il a pu mener à terme le Projet, même si sa responsabilité était non négligeable, eu égard aux nombreux dossiers qu‘il avait à traiter dans la privatisation. Une étude stratégique sur la réorientation et la réorganisation du cadre institutionnel du désengagement de l‘Etat vers le Partenariat Public Privé (PPP) a été élaborée par le STP en 2004. Le PPP a pour avantage de favoriser le financement des investissements et la prise en charge de la gestion par le secteur privé sans recourir au transfert de la propriété des actifs de l‘Etat.

Un projet de loi sur le Partenariat Public Privé (PPP) a été établi en 2008 sur financement de la Banque Africaine de Développement à travers le Projet de Réforme Institutionnelle pour la Bonne Gouvernance (PRIBG), mais elle n‘a pas encore été adoptée à ce jour. Elle a déjà été soumise au Comité de Réflexion sur le Droit des Affaires (CRDA) pour analyse et discussion avant sa soumission auprès de l‘Assemblée Nationale et le Sénat.

Suite à la crise de 2009 et à la décision de la Banque Mondiale de suspendre ses activités, tous les contrats des liquidateurs (qui sont tous des experts-comptables et/ou juristes ayant travaillé sur plusieurs dossiers de liquidation des entreprises) ont été résiliés, mais les actes juridiques de nomination n‘ont pas encore été dénoncés.

Concernant les processus de liquidation n‘ayant pas abouti, la principale recommandation est de reprendre les mêmes liquidateurs. En effet, il sera ardu pour de nouveaux liquidateurs d‘apprendre et de maîtriser l‘historique des dossiers, à cause de leur volume et de leur complexité, alors que les anciens liquidateurs les maîtrisent déjà, et détiennent les pièces originales des opérations de liquidation déjà réalisées. De ce fait, ils en constituent la mémoire institutionnelle incontournable. Enfin, le cas du STP a permis de signaler qu‘il est important d‘inclure ou d‘associer, dans les structures de mise en oeuvre des projets, des fonctionnaires afin de permettre le maintien d‘une mémoire institutionnelle et l‘appropriation des dossiers par l‘Administration à la fin desdits projets. Aujourd‘hui, en cas de clôture du STP, aucune branche de l‘Administration ne sera en mesure d‘assurer un relais efficace, que ce soit pour les opérations de désengagement ou les opérations de liquidation. b- Programme d’Action Sociale et Economique pour la Réinsertion Professionnelle (PASERP) Le rôle du PASERP porte sur le traitement des agents licenciés et leur accompagnement en vue de leur réinsertion professionnelle. A la clôture de ses activités en juin 2008, le PASERP a formé 4 277 travailleurs dans la démarche de réinsertion professionnelle, ce qui a abouti à l‘établissement de 3 530 travailleurs déflatés en entreprise. Dans sa mise en oeuvre, le projet a rencontré des problèmes relatifs au volet social. Malgré les activités de communication et de sensibilisation, ainsi que l‘accompagnement des agents déflatés, ces derniers ont effectivement suivi les formations dispensées dans le cadre du programme, mais les fonds « coup de pouce » qui leur ont été octroyés, ont plutôt été dépensés dans des achats matériels, n‘ayant rien à voir avec les activités qu‘ils auraient dû faire. Les principales leçons à tirer sont :  La mise en oeuvre d‘un programme de réinsertion professionnelle ne peut être confiée uniquement à une structure de Projet. Les collectivités locales et les Ministères devraient être impliqués activement dans leur responsabilité respective (résolution des problèmes fonciers, sociaux, infrastructures…), et s‘approprier la démarche.  Les institutions de micro-finance n‘ont pas pu répondre aux besoins des personnes établies en entreprise. De ce fait, ces dernières ont eu recours aux usuriers, plus flexibles et relativement moins contraignants.  Tout programme de réinsertion professionnelle doit aller de pair avec un programme de réinsertion sociale pour accompagner les personnes dans leur réintégration dans leur communauté.

71 c- Fonds de Portage et de Privatisation (FPP) Aucune des activités initialement prévues n‘a été menée à terme, en raison du retard important dans la mise en place de la structure de gestion, et de l‘arrêt du financement de la Banque Mondiale, lequel est intervenu quelques temps après la mise en place du FPP. Les activités réalisées ont plutôt porté sur la dotation en matériel et équipements et l‘appui au budget de fonctionnement hors salaire du FPP, à compter de la mise en place de la nouvelle structure de gestion.

Il est toutefois à noter que le soutien (technique et documentaire) du Projet, a grandement facilité le démarrage du FPP. En effet, le STP, structure financée par le Projet, a assuré la mémoire institutionnelle de la structure. Les travaux d‘archives réalisés par le STP, depuis 2003, ont été utilisés pour appuyer le FPP. Par ailleurs, le STP avait anticipé le programme de transfert des actions des entreprises vendues, et avait déjà élaboré les termes de références des différentes prestations de service relatives à la mise en oeuvre du Programme de Désengagement de l‘Etat.

Bien que les ressources financières aient été limitées, et la mise en place du FPP basée sur des travaux d‘archives, la structure a pu démarrer et fonctionner. Jusqu‘à maintenant (fin de l‘exercice 2010), 37,52 % des actions des entreprises privatisées ont pu être transférées au FPP. Il s‘agit d‘actions provenant de la privatisation réalisée avant 2005, mais aucune d‘elles n‘a été offerte aux petits investisseurs nationaux à cause du changement de stratégie. En effet, une stratégie consistant en l‘achat et la vente des actions des entreprises à privatiser au public a été adoptée. Cette stratégie, déjà validée par le Ministère des Finances et du Budget en début 2010, est encore dans sa phase de mise en place.

3- Composante 3 : Elaboration de nouvelles activités d’appui au secteur privé. a- Guichet Unique des Investissement et de Développement des Entreprises (GUIDE) Le guichet unique a pour mission de faciliter les procédures de création d‘entreprises, ceci afin de dynamiser le secteur privé, et de favoriser l‘émergence des entreprises ainsi que d‘assurer la promotion des Investissements Directs Etrangers. Suite à la restructuration du Projet, l‘Etat a créé une nouvelle structure dénommée Economic Development Board of Madagascar, laquelle a intégré toutes les activités du guichet unique en son sein. Le GUIDE a rencontré les problèmes suivants :  Le traitement inégal du personnel au sein de la structure a démotivé les fonctionnaires affectés par les différents Ministères pour le traitement des dossiers. La présence des consultants, qui sont souvent mieux payés que les fonctionnaires dans la structure a entraîné un rythme de travail à deux vitesses.  Le fonctionnement de la structure a été financé par le Projet, alors qu‘elle aurait sûrement pu se créer des ressources financières par le biais de ses activités, pour couvrir son propre fonctionnement.

Etant donné l‘importance d‘une telle structure dans la dynamisation du secteur privé, il est recommandé de réfléchir sur les mesures de pérennisation de la structure et des acquis du Projet, en créant des services payants pour financer le fonctionnement de la structure. Les fonctionnaires détachés par l‘Administration devraient être motivés à travers plus de formations et d‘indemnités… pour soutenir la performance de toute l‘équipe. Il apparaît tout aussi nécessaire

72 de garder les personnes affectées par l‘Administration publique au sein de la structure pour une réelle continuité des activités entamées. b- Export Processing Zone (EPZ) L‘Export Processing Zone avait pour but de créer une zone industrielle dédiée sur un terrain aménagé à Tsarakofafa, dans la province de Toamasina. Les activités réalisées ont consisté en la mise en place d‘infrastructures d‘un coût total de 1,5 milliard Ariary ou 1 million USD (eau, électricité et télécommunication), pour faciliter l‘installation des sociétés dans la zone. La société détentrice du bail emphytéotique s‘était engagée en septembre 2008, à travers la signature d‘un Protocole d‘Accord avec l‘Etat, à mener des activités de développement sur le site. Mais aucune viabilisation n‘a été réalisée depuis cette date. Selon le rapport de supervision de la Banque Mondiale en 2010, la zone est actuellement squattérisée dans sa quasi-totalité.

Une démarche visant à la sécurisation de la zone, à travers des études préliminaires sur la situation juridique et foncière et le transfert du titre de propriété à l‘Etat, aurait dû précéder le lancement des activités d‘installation des infrastructures. Dans le cas de ce projet, une étude relative au ciblage des entreprises et usines à implanter dans le site a été menée en 2004, à l‘issue de laquelle l‘agroalimentaire a été proposé comme secteur d‘activité de base. L‘Etat cherche aujourd‘hui une alternative pour rentabiliser les infrastructures déjà mises en place dans la zone. La Société de Gestion du Port Autonome de Toamasina (SPAT) s‘est déjà engagée à annuler tous les titres de propriété du site et à enlever tous les squatters qui s‘y sont installés. c- Investissements Directs Etrangers (IDE) Cette activité consiste en la promotion de Madagascar au niveau international pour inciter les opérateurs internationaux à investir dans le pays. Le Projet a surtout financé les déplacements et la participation de la délégation malgache constituée par des opérateurs privés et des responsables de l‘Administration, dans des événements comme les foires, les tables rondes, les road shows. Ces activités ont été menées de manière ponctuelle, et étalées sur toute la durée du projet, en fonction des manifestations et rencontres existantes, sans planification au préalable. Néanmoins, un des points forts de cette activité a été l‘éligibilité de Madagascar à l‘African Growth Opportunity Act (AGOA). Ces missions ont par ailleurs favorisé le rapprochement entre le secteur privé et l‘Administration.

Afin d‘en tirer les meilleurs avantages, il serait indiqué de réaliser les actions de marketing et de promotion avec des mesures d‘accompagnement pour le suivi des actions de promotion et de marketing. Les activités de promotion et de communication nécessitent une bonne organisation et de planification de la part d‘une cellule de coordination (entité qui n‘a pas été mise en place par le Ministère). d- Comité d’appui au pilotage de la relance de l’entreprise (CAPE) Le CAPE est une structure créée pour redynamiser le secteur privé après la crise sociopolitique de 2002. Il s‘agit d‘une plateforme de dialogue entre le secteur privé et les autorités de l‘Etat pour la relance économique. Il vise à instaurer un climat de confiance pour attirer les Investissements Directs Etrangers d‘une part, et pour impliquer le secteur privé dans les orientations de la politique de développement malgache, d‘autre part. Le volet CAPE a été clôturé en 2006.

Des études sur différents domaines du secteur privé (fiscalité du tourisme, le financement des Petites et Moyennes Entreprises ou PME…) et des formations transversales (montage de dossiers crédit, gestion d‘entreprise, normes et qualité) pour les PME ont été réalisées. Le secteur privé a également pu participer à l‘établissement de la loi de Finances et l‘élaboration des textes juridiques (loi sur la concurrence, loi sur les sociétés). Le dialogue a permis d‘adopter 49 mesures de facilitation douanières. Malgré cela, le CAPE a été plus orienté vers le financement des études que dans la gestion d‘une plateforme d‘échange et de concertation entre le secteur privé et le secteur public. Le secteur privé a plutôt privilégié la concertation directe avec les dirigeants (Présidence, membres du Gouvernement). D‘autant plus que le Secrétaire Exécutif du CAPE était perçu par certains groupements du secteur privé comme étant trop proche d‘un groupement du secteur privé, dont il occupait la vice-présidence.

A la clôture de cette composante, les acquis (études, matériels…) auraient dû être capitalisés (base des données) et valorisés par une autre structure comme la Chambre de commerce, qui constitue déjà une plateforme de dialogue et de concertation pour tous les opérateurs privés. Le renforcement de la Chambre de commerce, au lieu de créer une nouvelle structure, aurait été plus rentable et efficace puisqu‘il s‘agit d‘une structure pérenne. e- African Trade Insurance (ATI) L‘ATI est une agence d‘assurances permettant la couverture des risques politiques, outre ceux sur les transactions courantes. Cette entité devait sécuriser les investissements mais la contribution financière versée par l‘Etat Malgache n‘a pas été suffisante. Sur les nombreux dossiers déposés, aucune entreprise à Madagascar n‘a bénéficié d‘une garantie de la part de l‘ATI. L‘échec dans le cadre de cette activité aurait pu être pallié par une étude de marché préalable. Cette démarche aurait pu déterminer la demande d‘un tel produit et la taille des investissements à assurer avant le lancement. Par ailleurs, il aurait été nécessaire de réaliser une campagne d‘information et de communication auprès des opérateurs privés sur les objectifs, la nature des services offerts et les démarches à adopter pour en bénéficier. f- Business Partners International (BPI) Cette sous-composante a été créée suite à l‘accord signé entre l‘Etat et Business Partners International en 2005. Elle participe aux activités du Centre de Solution Petites et Moyennes Entreprises de la Société Financière Internationale (SFI). La participation de l‘Etat Malgache porte sur l‘assistance technique aux PME bénéficiaires des crédits octroyés, et le BPI sur le fonds d‘investissement (10 millions USD) pour les PME à Madagascar. A la clôture du Projet, 53 PMEs ont pu bénéficier de l‘assistance technique.

Sur les 2 millions USD affectés à l‘assistance technique, un peu moins de 200 000 USD ont pu être utilisés. La crise sociopolitique qui a débuté en janvier 2009, a en effet eu un impact important sur l‘économie malgache, et par conséquent sur l‘environnement des affaires à Madagascar. Ainsi, BPI a décidé de clôturer prématurément toutes les activités du fonds d‘investissement et du fonds d‘assistance technique à Madagascar en juin 2010, si la date de clôture prévue est en 2013. Une part importante, de 1 525 000 USD, n‘a pas été utilisée et a été remboursée par le BPI dans le compte du Projet à Washington, en décembre 2010.

74 g- Tourisme La sous-composante Tourisme a été clôturée en 2006. Elle avait pour objectif de développer une Réserve Foncière Touristique (RFT) à Anakao, Beheloka et Soalara dans la province de Tuléar. Les sites touristiques ont été délimités et les travaux de bornage ont été effectués par le Ministère du Tourisme pour sécuriser les différents sites. Les plans d‘aménagement sont déjà élaborés, et le Ministère du Tourisme en partenariat avec l‘EDBM ont été chargés de la promotion des sites auprès des investisseurs potentiels. Suite à la crise sociopolitique, aucune promotion de ces sites n‘a encore été démarré jusqu‘à ce jour, selon l‘EDBM. Des habitants ont alors commencé à s‘installer dans la réserve, ce qui aura présenté un surcoût en terme de déplacement et de régularisation du volet social à la reprise de l‘activité. Il est recommandé à l‘Etat, notamment au Ministère de tutelle et les autorités locales, de procéder à la sécurisation (juridique, physique) de ces sites afin de contenir le surcoût dans la relance de cette activité.

2. Bilan des réalisations

2.1. Impact du Projet : Les principaux indicateurs d‘impact du Projet relatifs à ses activités sont l‘augmentation des investissements privés dans les secteurs ciblés et l‘amélioration de l‘accès à des services fiables, abordables et de qualité dans chaque secteur. Augmentation des Investissements Directs Etrangers Concernant les investissements privés dans les secteurs visés, nous avons enregistré 778 millions USD d‘investissements privés en 2007 contre 95 millions USD en 2004, mais avec un rapport IDE/PIB de 6,4 % en 2009 contre 10,4% en 2007. Cette augmentation provient en grande partie des grands projets miniers, mais elle démontre aussi le dynamisme du secteur privé et l‘effort du Gouvernement dans l‘amélioration de l‘environnement des affaires pour sécuriser les investissements. Si l‘on ne tient pas compte des investissements dans le secteur minier et des recettes de la privatisation, la part des investissements se retrouve réduite et le taux IDE/PIB devient 4,2% en 2007 et 1,1 % en 2009. Il est toutefois difficile d‘apprécier la contribution du Projet dans le résultat d‘ensemble.

Amélioration de l’accès aux services L‘analyse s‘est portée sur le secteur des télécommunications où dans l‘ensemble les résultats sont satisfaisants. i) le nombre d‘abonnés d‘internet a augmenté de 15 000 abonnés en 2003 à 26 692 abonnés en 2009, ii) le taux d‘accès aux lignes téléphoniques (fixe et mobile) a connu une augmentation de 31,6% en 2009 à la fin du projet, iii) Si l‘objectif de cet indicateur est d‘avoir un « niveau de tarif égal au plus à fin 2006 à la moyenne appliquée par les opérateurs de la région et pour lesquels la concurrence est équivalente à celle existante à Madagascar », le niveau de tarif moyen local (mobile local) est passé de 0,58 USD par 3 min (Tarif moyen appliqué par les opérateurs dans la région2 était de 0,51USD/3 min) en 2003 à 0,14 USD par 3 min en 2009, (Tarif moyen appliqué par les opérateurs dans la région est de 0,21 USD/3 min).

Il a été difficile de collecter le nombre des usagers d‘internet dans la mesure où l‘OMERT ne dispose pas de ces données. Néanmoins, le nombre d‘abonnés d‘internet a augmenté de 56% entre 2003 et 2009. L‘amélioration de l‘accès aux services de télécommunications s‘est

également traduite par l‘augmentation du taux d‘accès aux lignes téléphoniques (fixe et mobile) de 31,6% à la fin du Projet, avec un tarif 33% (en 2009) moins cher que le tarif moyen appliqué par les opérateurs dans les pays comparateurs (Togo, Sénégal, Maurice et Maroc).

2.2. Performance du Projet : Programme de désengagement des principales entreprises publiques : Concernant la performance du Projet dans le domaine de la privatisation, la situation des 54 entreprises publiques inscrites dans le programme de désengagement de l‘Etat à la clôture de celui-ci se présente comme suit : 6 privatisations réalisées, 8 privatisations non réalisées, 21 liquidations effectuées, 12 liquidations en attente du paiement des créanciers par l‘Etat et 7 liquidations suspendues par des problèmes contentieux et fonciers.

Bien que le programme n‘ait pas été mené à terme, les résultats obtenus sont satisfaisants, notamment dans le traitement des dossiers des entreprises à liquider. Les réalisations en matière de privatisation d‘entreprises ont par ailleurs permis de redynamiser d‘une manière significative les secteurs concernés (cas notamment des secteurs des Télécommunications et de l‘Hydrocarbure). Par contre, la suspension du processus sur les entreprises du secteur aérien (Air Madagascar et ADEMA) continue d‘affecter la compétitivité de l‘économie malgache et le développement du secteur du Tourisme. Les différents atermoiements, sur le cas de la SIRAMA, ont eu des conséquences des plus négatives avec l‘effondrement de la production nationale de sucre et la perte de plusieurs milliers d‘emplois.

Depuis la clôture des transactions, plusieurs critiques sont entendues sur la pertinence de la privatisation, la transparence du processus ou les modalités de transfert de certaines entreprises publiques au secteur privé, cas notamment de TELMA, MADARAIL et HASYMA. Cela relève l‘importance de la communication de l‘Etat envers le public, la société civile et le monde politique, tout au long du programme de privatisation dans le but de présenter la situation de départ, les objectifs de la réforme, les procédures et les modalités de mise en oeuvre, les conditions de la vente et les résultats obtenus.

Développement du secteur privé Au niveau du Secteur Privé, la performance du Projet est résumée par les indicateurs de résultats suivants: - 2 étapes et 7 jours pour créer une entreprise auprès de l‘EDBM. Ceci concerne Antananarivo ; - Nombre d‘entreprises créées : 2005 2006 2007 2008 2009 TOTAL Antananarivo 882 1,115 1,171 1,138 909 5,218 Antennes 856 329 92 - Taux d‘occupation de la Zone Industrielle : 0%. Activité suspendue. - Selon le site de ATI, aucune entreprise malgache n‘a bénéficié de la garantie ATI. - 37 PME ont bénéficié du fonds d‘investissements ; 53 PME ayant bénéficié de l‘assistance technique ; 319 emplois créés et 1108 emplois soutenus.

Le guichet unique a été intégré au sein de l‘Economic Development Board of Madagascar après la restructuration en 2006. Les activités ont été ainsi reprises par cette nouvelle institution. Les étapes et la durée du traitement des dossiers pour la création de l‘entreprise ont été très allégées.

Au début du Projet, il a fallu passer par 17 étapes pour 157 jours contre 2 étapes pour 7 jours lors et après le Projet. Les différentes démarches peuvent être effectuées à un seul endroit. Tout cela a insufflé un vent nouveau à l‘économie malgache boostée par l‘augmentation du nombre d‘entreprises créées et qui est resté stable depuis 2005. Les résultats dans le cadre de ce volet sont également mitigés. Hormis les réalisations dans le cadre de l‘amélioration des indicateurs doing business, les activités n‘ont pas abouti à des avancées notables.

3. Performance de la Banque Mondiale L‘équipe de la Banque Mondiale s‘est toujours montrée disponible pour le Gouvernement et l‘équipe du Projet. Elle a prodigué des conseils techniques d‘importance et a démontré son soutien dans sa flexibilité et sa capacité d‘adaptation, au vu des modifications fréquentes du contexte socio-économique et des priorités du Gouvernement. Les discussions entre l‘emprunteur (Ministères) et le bailleur ont permis d‘instaurer une confiance réciproque et une bonne relation. Dans le cadre de ces discussions, les structures de gestion du Projet n‘y ont pas toujours été associées. Les informations sur les décisions et les orientations leur sont parvenues par l‘intermédiaire de la Banque Mondiale, mais non pas par leur hiérarchie respective.

4. Performance du Gouvernement De manière globale, les résultats du Projet sont satisfaisants. Toutefois, un grand nombre d‘activités, dont notamment au niveau de la composante développement du secteur privé n‘ont pas donné de résultats probants (Export Processing Zone/Tsarakofafa, African Trade Insurance). De même, les résultats au niveau de la privatisation des grandes entreprises demeurent partiels, le sort réservé à des entreprises structurantes (Air Madagascar, ADEMA, JIRAMA) restant encore incertain. Les résultats en matière de liquidation d‘entreprises publiques sont par contre très positifs. La performance du Gouvernement a été handicapée par les modifications fréquentes dans le cadre institutionnel avec la séparation du Ministère en charge de la privatisation et du développement du secteur privé.

Annex 8. Comments of Co-financiers and Other Partners/Stakeholders

Not applicable. This project was executed by the Government of Madagascar with funding and technical support provided by the World Bank.

Annex 9. List of Supporting Documents

EIU (2010), ―Madagascar: Country Report‖, March 2010. Government of Madagascar (2006), ―Madagascar Action Plan 2007-2012‖, http://siteresources.worldbank.org/INTMADAGASCAR/Resources/MAP_en.pdf. GTZ (2009), ―International Fuel Prices 2009‖, 6th edition, More than 170 Countries. International Monetary Fund (IMF) (2000), ―Madagascar to Receive US$1.5 billion in Debt Service Relief: The IMF and World Bank Support Debt Relief for Madagascar under the Enhanced HIPC Initiative‖, Press Release No. 00/81, December 22, 2000, www.imf.org/external/np/sec/pr/2000/pr0081.htm. ——— (2004), ―IMF and World Bank Support US$836 Million in Debt Service Relief for Madagascar‖, Press Release No.04/219, October 21, 2004, www.imf.org/external/np/sec/pr/2004/pr04219.htm. International Telecommunication Union (ITU) (2009), ―Measuring the Information Society‖. ——— (2010), ―Measuring the Information Society‖. Katz, R.L., E. Flores-Roux and J. Mariscal, (2009), ―The Impact of Taxation on the Development of the Mobile Broadband Sector‖, available online: www.gsmamobilebroadband.com/upload/ resources/files/15072010174953.pdf. World Bank (2000), ―Environmental Pre-Audit of Enterprises: Selection of Enterprises of Audits‖, No. E-407, November 2000. ——— (2002),―Memorandum and Recommendation by the President of the International Development Association to the Executive Directors on a Proposed portfolio Restructuring in a Post-Conflict Environment in the Republic of Madagascar‖, October 22, 2002, Report No. P7561-MAG. ——— (2003), ―Implementation Completion Report (PPFI-P8000; PPFI-P8001; IDA-29560; PPFI-P8800; PPFI-P8801) on a Credit in the Amount of SDR17.2 Million (US$ 23.8 Million Equivalent) to the Republic of Madagascar for a Private Sector Development and Capacity Building Project‖, Report No.26256, February 23, 2003. ——— (2007), Country Assistance Strategy for the Republic of Madagascar for 2007-2011, March 7, 2007, Report No. 38 135-MG, www- wds.worldbank.org/external/default/WDSContentServer/ WDSP/IB/2007/04/27/ 000020953_20070427084117/Rendered/PDF/38135.pdf. ——— (2011a), World Development Indicators. ——— (2011b), ―Madagascar: Country Brief‖, accessed on January 22, 2011, http://go.worldbank.org/D41QD46W10. U.S. Government (2009), ―Presidential Proclamation on Actions Under AGOA‖, December 23, 2009, www.america.gov/st/texttrans- english/2009/December/20091223163633ptellivremos0. 4005657.html#.

Annex 10. Map of Madagascar

i Data retrieved from the International Telecommunication Union (ITU) database and the World Bank DDP website. The ten countries for fixed line telephony: Burundi, Congo, DRC, Guinea-Bissau, Malawi, Niger, Nigeria, Somalia, Sudan and Zimbabwe. Data for Congo and Guinea-Bissau were not available while data for DRC, Nigeria, Somalia and Zimbabwe were partially available. The 22 countries for mobile telephony: Angola, Botswana, Burkina Faso, Cameroon, Cape Verde, CAR, DRC, Congo, Eritrea, Ghana, Guinea, Guinea-Bissau, Malawi, Mozambique, Namibia, Niger, Nigeria, Sierra Leone, South Africa, Tanzania, Zambia and Zimbabwe. Data for Guinea-Bissau were not available while data for Angola, Botswana, Cameroon, Eritrea, Guinea, Niger, Nigeria, Sierra Leone, Tanzania, Zambia and Zimbabwe were partially available. The countries were selected based on the conditions mentioned in the PAD indicator. The 10 countries selected for the fixed line telephony average were those SSA countries rated as having ―competition‖ in the market for national long distance calls (as supposed to none or partial competition according to the World Bank ICT database). The 22 countries selected for the mobile telephony average were those SSA countries rated as having ―competition‖ in the market for either analog or digital mobile telephony (as supposed to none or partial competition according to the World Bank ICT database). The rate presented are the simple average prices in US$ for ―peak‖ and ―off-peak‖ rates.

IBRD 33439R 45°E 50°E

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MayotteMayotte MADAGASCAR (France)(France) AmbilobeAmbilobe

VohimarinaVohimarina AmbanjaAmbanja DIANADIANA MaromokotroMaromokotro (2,876(2,876 m)m) MassifMassif SambavaSambava TsaratananaTsaratanana SAVASAVA BealananaBealanana AntalahaAntalaha 15°S AntsohihyAntsohihy 15°S

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o ALAOTRAALAOTRA BETSIBOKABETSIBOKA f f f Fenoarivo-AtsinananaFenoarivo-Atsinanana f MELAKYMELAKY KandrehoKandreho AndriamenaAndriamena MANGOROMANGORO i i M l l a Lake na C C mb B Alaotra ah e o ts i AmbatondrazakaAmbatondrazaka b

k MaintiranoMaintirano a AndilanatobyAndilanatoby

AnkazobeAnkazobe ToamasinaToamasina ANALAMANGAANALAMANGA BONGOLAVABONGOLAVA ATSINANANAATSINANANA AntsalovaAntsalova TsiroanomandidyTsiroanomandidy ITASYITASY ANTANANARIVOANTANANARIVO MiarinarivoMiarinarivo MoramangaMoramanga TsiafajovonaTsiafajovona INDIAN

(2,642(2,642 m)m) VatomandryVatomandry a AntanifotsyAntanifotsy MiandrivazoMiandrivazo t a OCEAN BeloBelo TsiribihinaTsiribihina r M VAKINANKARATRAVAKINANKARATRA ango a ro Tsiribihina Ma k nia AntsirabeAntsirabe MahanoroMahanoro 20°S n 20°S A MorondavaMorondava MalaimbandyMalaimbandy AMORON’IAMORON’I MMANIAANIA Ambatofinan-Ambatofinan- AmbositraAmbositra VarikaVarika MENABEMENABE drahanadrahana

AmbohimahasoaAmbohimahasoa MandabeMandabe

HAUTE-MATSIATRAHAUTE-MATSIATRA MananjaryMananjary ManjaManja FianarantsoaFianarantsoa BerorohaBeroroha VATOVAVY-VATOVAVY- MorombeMorombe goky Man FITOVINANYFITOVINANY 0 40 80 120 160 200 Kilometers AnkazoaboAnkazoabo PicPic BobyBoby ManakaraManakara (2,658(2,658 m)m) ATSIMO-ATSIMO- IhosyIhosy 040 80 120 Miles ANDREFANAANDREFANA IHOROMBEIHOROMBE M FarafanganaFarafangana 50°E na an ha an ec SakarahaSakaraha ar er a ih F BetrokaBetroka ToliaraToliara ATSIMO-ATSIMO- BetiokyBetioky Midongy-Midongy- nilahy MADAGASCAR O AtsimoAtsimo ATSINANANAATSINANANA SELECTED CITIES AND TOWNS TsivoryTsivory

BeraketeBerakete e REGION CAPITALS This map was produced by v a r the Map Design Unit of The d n NATIONAL CAPITAL World Bank. The boundaries, a

colors, denominations and AmpanihyAmpanihy M ANOSYANOSY any other information shown u RIVERS ra atea on this map do not imply, on nd y Pl ra dro AmboasaryAmboasary the part of The World Bank na An 25°S MAIN ROADS Group, any judgment on the AndrokaAndroka e TolanaroTolanaro M BelohaBeloha AmbovombeAmbovombe legal status of any territory, or any endorsement or ANDROYANDROY RAILROADS acceptance of such boundaries. REGION BOUNDARIES 45°E

MAY 2011