PROJECT APPRAISAL REPORT Date : June 2012

Transcription

1 Language: ENGLISH Original: French PROJECT : Private Sector Promotion Support Project (PAPSP) COUNTRY : Republic of Senegal PROJECT APPRAISAL REPORT Date : June 2012 Appraisal Team ; Peer Reviewers Team Leader : I. A. MAHDI, Chief Financial Analyst, OSGE.1 Team Members : C. SARR, Financial Expert, OSGE.1/SNFO A. TARSIM, Senior Economist, OSGE.1 K. GASSAMA, Economist, SNFO A. NNA EBONO, Regional F.M. Coordinator, ORPF.2/SNFO M. DIALLO, Procurement Officer, SNFO S. L. CISSE, Consultant, OSGE.1 Sector Director : I. LOBE NDOUMBE, Director, OSGE Regional Director : F. PERRAULT, Director. ORWB Sector Division Manager : J. L. BERNASCONI, Division Manager, OSGE.1 R. LAKOUE DERANT, Economist, OSGE.2 A. BA, Principal Technical Assistant, OPSM T. HOUENINVO, Principal Country Economist, ORWB M. A. ISMAIL, Principal Transport Economist, OITC C. SUGDEN, Senior PFM Specialist, OSGE.2.

2 TABLE OF CONTENTS LISTS OF BOXES AND TABLES... i CURRENCY EQUIVALENTS, ACRONYMS AND ABBREVIATIONS... ii PROJECT INFORMATION SHEET... iv PROJECT SUMMARY... v I STRATEGIC THRUST AND RATIONALE Project Linkages with Country Strategy and Objectives Rationale for Bank s Involvement Aid Coordination... 2 II PROJECT DESCRIPTION Constraints and Challenges Project Components Technical Solutions Retained and Other Alternatives Explored Project Type Project Cost and Financing Arrangements Project Area and Beneficiaries Participatory Process for Project Identification, Design and Implementation Bank Group Experience and Lessons Reflected in Project Design Key Performance Indicators... 8 III PROJECT FEASIBILITY Environmental and Social Impact... 8 IV- IMPLEMENTATION Implementation Arrangements Project Monitoring Activities Project Governance Sustainability Knowledge Building Risk Management V Legal Framework Legal Instrument Compliance with Bank Policies VI - RECOMMENDATION Appendix I. Maroeconomic Indicators... Appendix II. Table of National Public Sector Projects in Senegal... Appendix III. Map of Project Area...

3 LIST OF BOXES No. Title Pages 1 Main Constraints and Challenges 3 2 Key Project Performance Indicators 8 LIST OF TABLES No. Title Pages 1.1 Project Components and Planned Activities Cost Estimates by Component Project Cost by Expenditure Category Sources of Financing Expenditure Schedule by Component Expenditure Schedule by Expenditure Category 6 i

4 ii CURRENCY EQUIVALENTS, ACRONYMS AND ABBREVIATIONS Currency Equivalents May 2012 UA = CFAF UA = UA = US$ 1.55 Fiscal Year 1 January 31 December Acronyms and Abbreviations ADB ADEPME ADF AGS ANSD CDC CFAF CGI CME CMP CSO CSP DASP DCEF DCMP DEF DGID DPES DPME EPSI GDP GIZ IDA IMF LSP-SME MCA MEF OHADA OQSF PARE PCR PEFA PMT PRBF RBCSP SME African Development Bank Small and Medium-Sized Enterprise Development and Supervision Agency African Development Fund Accelerated Growth Strategy National Statistics and Demographic Agency Caisse de Dépôt et de Consignation (Deposit and Consignment Fund) CFA Franc General Tax Code Centre for Medium-Sized Enterprises Caisse des Marchés Publics (Public Procurement Fund) Civil Society Organization Country Strategy Paper Private Sector Support Department Department of Economic and Financial Cooperation Central Directorate of Public Procurement Department of Women s Entrepreneurship General Directorate of Taxation and State Lands Economic and Social Policy Paper Department of Small and Medium-Sized Enterprises Economic Policy Support Instrument Gross Domestic Product German International Cooperation International Development Agency International Monetary Fund Letter of Sector Policy on SME Millennium Challenge Accounts Ministry of the Economy and Finance Organization for the Harmonization of Business Law in Africa Financial Service Quality Observatory Economic Reform Support Programme Project Completion Report Public Expenditure and Financial Accountability Project Management Team Budgetary and Financial Reform Plan Results-Based Country Strategy Paper Small and Medium-Sized Enterprise

5 iii SNFO TFP UA UFCE UNDP USAID WAEMU WEDSP ADB Regional Office in Senegal Technical and Financial Partner Unit of Account Union des Femmes Chefs d Entreprises (Association of Women Business Executives) United Nations Development Programme United States Agency for International Development West African Economic and Monetary Union Women s Entrepreneurship Development Strategy Paper

6 iv PROJECT INFORMATION Client Information BORROWER : Republic of Senegal EXECUTING AGENCY : Private Sector Support Department (DASP), Ministry of the Economy and Finance (MEF) Financing Plan Source Amount (UA million) Instrument ADF 4.04 Loan Counterpart 0.46 TOTAL COST 4.50 Loan Currency ADF Key Financing Information UA Interest Rate Type* NA Funding Margin* NA Service Charge* 0.75% Tenor Grace Period FRR, NPV (baseline scenario) ERR (baseline scenario) 50 years 10 years NA NA Timeframe Main Milestones (expected) *if applicable Identification Preparation January 2012 Concept Note Approval April 2012 Appraisal May 2012 Country Team June 2012 Loan Approval July 2012 Effectiveness October 2012 First Disbursement October 2012 Completion July 2015 Last Disbursement June 2016 Last Repayment December 2062

7 v PROJECT SUMMARY Project Project Name Overview Needs Assessment and Relevance Outcomes Impacts Target Beneficiaries Bank s Value Knowledge Building and Added : Private Sector Promotion Support Project (PAPSP) Geographical Location : SENEGAL Overall Timeframe : 36 months over the August 2012 July 2015 period Project Cost UA. 4.5 million (ADF: 4.04 million and Government of Senegal: 0.46 million) In Senegal, the SME sub-sector represents about 90% of private enterprises and accounts for 20% of GDP and 40% of jobs created. Many challenges are yet to be met as regards SME development and promotion, including: (i) early business failure rate (about 60% during the first year of existence); (ii) predominance of the informal sector and lack of professionalism; (iii) difficulties in accessing public procurement; (iv) lack of financial information; and, (v) difficulties in accessing appropriate bank financing for SMEs. Effective implementation of the LSP/SME priority action plan and the WEDSP-related action plan represents a major challenge for Senegal. The main expected outcomes are: regarding support to SME-dedicated services : (i) improved statistical coverage of SMEs, (ii) a trend towards fiscal equity by broadening the SME tax base, (iii) a reduction in customs clearance times; and regarding support to SME supervisory and assistance structures: (i) improvement in the share of public procurement contracts awarded to SMEs to 30% in 2014 compared to 20% in 2008 and (ii) easier access to financing. The main beneficiaries of the project will be: (i) government services through institutional capacity building of the structures in charge of SME promotion and development; (ii) overall, the private sector and SMEs, in particular, by building their capacities to enhance their economic and financial performance; and (iii) the Senegalese people through better contribution of SMEs to wealth and job creation. The Bank s intervention will be decisive regarding the two main activities of this project: the Statistical Information System and the SME Quality Certification Programme. It will support the Authorities efforts to resolve certain critical development-related problems of SMEs not addressed by the other TFPs. This intervention will also consolidate the Bank s position among the aid coordination bodies. In addition, through the project s spinoff effects, the Bank will contribute to the effectiveness and efficiency of programmes such as those related to Upgrading and the Subcontracting Exchange, which target SME development. The PAPSP will help to build knowledge and good practices in the area of SME promotion and development through the studies conducted, the information systems established, the training courses, the sensitization and awareness sessions on the tools, handbooks and manuals for SMEs. Institutional capacity building knowledge will also be acquired under this project.

8 vi RESULTS-BASED LOGICAL FRAMEWORK Country and Project Name: Senegal Private Sector Promotion Support Project (PAPSP) Project Goal: Contribute to improving financial governance and the business climate so as to achieve lasting and sustainable private sector-driven growth. PERFORMANCE INDICATORS MEANS OF RISKS/MITIGATIO RESULTS CHAIN Indicators (including CSI) Baseline Situation Targets VERIFICATION N MEASURES I M P A C T E F F E C T S O U T P U T S Financial governance and the business climate for SME promotion improved. are I. Administrative services to SMEs are improved II. The SME promotion mechanism is improved Contribution of SMEs to GDP Doing Business ranking Trend of private sector credit in relation to total credit to the economy Contribution of SMEs to job creation SME statistical coverage improved SME tax base broadened Customs clearance time reduced % of contracts awarded to SMEs (including those headed by women) Component I : Support for SME-Dedicated Services I.1- Improve Tax and Customs Arrangements for SMEs Establishment of the CME operational Medium-Sized Enterprises Centre Dematerialization of customs procedures Customs system modernized I.2- Facilitate SME Access to Public Procurement Preparation of public Handbooks prepared and procurement disseminated, and SME handbooks and their training sessions carried out dissemination to SMEs I.3- Establishment of an SME Statistical System Conduct of the SME Survey conducted and survey and preparation database prepared of the database 20% in th in 2012 CFAF 1.87 billion in % in 2011 About 950 SMEs 920 SMEs in hours in 2011 About 20% in 2008 CME established Pre-customs clearance dematerialized Lack of SMEdedicated handbook Non-existent 22% in th in 2014 CFAF 2.6 billion, i.e. 58% increase in % in 2015 Over 10,000 SMEs in 2014 Over 2000 SMEs in 2014 < 48 hours in to 30% including 10% to women business executives in 2014 CME is operational in 2014 Customs clearance and removal dematerialized in 2014 Handbooks prepared and at least 3 training sessions/year by end of 2014 The survey is conducted at the end of 2013, and the database is available and accessible in 2014 Component II : Support for SME Supervisory and Assistance Structures II.1- Build the Capacities of SME Promotion and Development Structures Implementation of Number of SMEs having SMEs per year SME quality benefited from the programme (including at least 30% certification (including those headed by women) programme women) II.2- Facilitate SME Access to Financing Establishment of Legal and Institutional Non-existent CMP operational in Public Procurement Framework of the Public 2014 Fund Procurement Fund Sensitization and operational Training in Financial 0 Education Number of sensitization and training sessions organized 5 sessions per year with a participation of 150 SMEs/yr. MEF and DPEE data Doing Report Business ANSD, DPEE, DMC and BCEAO Data DGID, DGD, ADEPME and ANSD Reports DMC, BCEAO, DCMP, ADEPME, ANSD and DPME Reports DGID Reports DGD Report DCMP Report ANSD Reports ADEPME Programme Report MEF data (DCMP, DASP, DMC, CDC, OQSF, etc.) Risk : Capacities too weak for reform implementation Mitigation: Capacity building for some institutions like the Court of Auditors and evidence of increased autonomy of ARMP Risk : Weak technical capacity of SME actors Mitigation: Training, sensitization of private sector support structures Risk: Institutional instability: task dispersal and frequent changes in SME oversight bodies Mitigation: Attachment of the project to a more stable structure with experience of working with all the project stakeholders Component I (cf. Detailed Description of Activities in Technical Annex C1) - Technical assistance, equipment, training, communication and sensitization: General Directorate of Taxes and State Lands (DGID), General Directorate of Customs (DGD), Central Directorate of Public Procurement (DCMP), National Statistics and Demographic Agency (ANSD) Component II (cf. Detailed Description of Activities in Technical Annex C1) - Technical assistance, equipment, training, communication and sensitization: SME Department (DPME), SME Development and Supervision Agency (ADEPME), Department of Women s Entrepreneurship (DEF), Deposits and Consignment Fund (CDC), Department of Money and Credit (DMC), Financial Service Quality Observatory (OQSF) Project Management: Private Sector Support Department (DASP) RESOURCES ADF Loan : Indicative Cost in UA Million Component I 1.98 Component II 1.89 Project 0.63 Management Total 4.50

9 vii COMPONENT / SUB-COMPONENT Loan Agreement Signature and Approval Component I. Improvement of SME-Dedicated Services I.1 Improve the Tax and Customs Arrangements for SMEs (DGID and DGD) Technical Assistance (IT system, CGI communication system, tax guide for SMEs) for CME Sensitization Sessions (sensitization and information) for SMEs on the General Tax Code (CGI) Technical Assistance (study on single payment discharge receipt DGD, DGID and Treasury Interconnection for the NINEA Organization of Training and Sensitization Sessions for SME/SMI Users of the Customs Clearance System IT Equipment and Office Furniture and Equipment for DGID (CME) and DGD Documentation (Reproduction of SME Tax Guide Publication and printing of communication aids) I.2 Facilitate SME Access to Public Procurement (DCMP) Study on the Identification and Classification of SMEs pursuant to the Framework Law Training Workshops (extension of SYGMAP for DCMP employees to SMEs) IT Equipment and Software and DCMP Office Furniture and Equipment Design and Publication of Training and Guidance Aids (handbooks, leaflets and brochures) I.3 Establishment of an SME Statistics System (ANSD) National SME Pilot Survey and Effective National SME Survey Component II. Support for SME Supervisory and Assistance Structures II.1 Capacity Building for SME Promotion and Development Support Structures (DPME ADEPME DEF) Recruitment of two (2)support experts to monitor implementation of LSP/SME for DPME Technical Assistance to ADEPME for Implementation of the Quality Certification Programme Technical Assistance (Information System Women Entrepreneurs Handbook - Profile of the Woman Entrepreneur Contribution of Women Entrepreneurs to Economic Growth List of Women Entrepreneurs) for DEF Preparation of Information, Education and Communication Aids for Women Entrepreneurs - DEF Sensitization Workshops on the Women Entrepreneurs Handbook in Dakar and the Regions DEF Preparation of Information, Education and Communication Aids on Quality Labeling ADEPME Reproduction (Women Entrepreneurs Handbook, list of women entrepreneurs, communication aids) DEF IT Equipment and Office Furniture and Equipment for DPME, ADEPME and DEF LS Link and Cloud Subscription (data security and protection) II.2 Facilitation of SME Access to Financing (CDC DMC OQSF) Feasibility Study on Public Procurement Fund and Operationalization CDC Preparation of the Legal Framework for the Public Procurement Fund CDC Feasibility Study on the Factoring Business in Senegal and Study on Bank Litigation and Court Rulings - DMC Preparation of 18 Training Modules on Financial Education and Training Modules- OQSF External Benchmarking Missions CDC and DMC Publication of Aids for the SME Financial Education Programme IT Equipment and Software - OQSF Project Management Technical Assistance IT Equipment - Office Furniture and Equipment Transport Equipment (saloon car) for the PMU Project Audit Project Closure Project Implementation Schedule Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

10 REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARD OF DIRECTORS CONCERNING A PROJECT TO SUPPORT PRIVATE SECTOR PROMOTION AND DEVELOPMENT IN SENEGAL (PAPSP) Management submits the following report and recommendation on a proposed ADF Loan of UA 4.04 million to the Republic of Senegal to finance the Private Sector Promotion Project (PAPSP). I. STRATEGIC THRUST AND RATIONALE Project Linkages with Country Strategy and Objectives Senegal is a traditionally stable country characterized by democratic changes of power. A new President of the Republic was elected from the opposition coalition on 25 March At the economic level, despite the poor performance of the primary sector due to lack of rainfall, the GDP growth rate was 2.6% in , compared to an estimated 4%. The inflation rate was 3.4%, reflecting an increase in food prices. In 2012, the macroeconomic prospects are contingent on a real growth rate of about 3.9% and projected annual inflation of 2.3 %. Growth prospects are based on assumptions of continuing public investments in the infrastructure 2 sectors and an improvement in electric power supply as a result of the Energy Sector Recovery Plan. This growth rate still falls short of the target of 6 to 7% set in the Economic and Social Policy Paper (DPES). In order to accelerate growth, the authorities have focused on private sector development as indicated in the Accelerated Growth Strategy (ASC) In November 2011, the Senegalese Government adopted its national medium-term development strategy set out in the Economic and Social Policy Paper (DPES), which focuses on three (3) strategic thrusts 3. The Private Sector Promotion Support Project (PAPSP) draws mainly on the first and third thrusts of the DPES. It is also in keeping with the Accelerated Growth Strategy 4 which focuses particularly on the objectives of SME development and supervision 5. The PAPSP is also aligned with the first Pillar ( improvement of the business climate and economic diversification framework ) of the Bank s medium-term strategy ( RBCSP) for Senegal. Furthermore, the project aims to contribute to the measures of the Economic Reform Support Programme (PARE) adopted by the Bank in The project is also consistent with the pillars of the Bank s Medium-Term Strategy ( ), and is in line with the Governance Strategic Guidelines and Action Plan (GAP, ) a strategic pillar of which is improvement of the business environment The project activities also draw on the different policy documents prepared by the Senegalese Authorities for the promotion and development of SMEs; the documents are: (i) the Letter of Sector Policy on SMEs (LSP/SME) (refer to Annex A of the Technical Annexes: Synthesis Note) accompanied by a Priority Action Plan entitled SME Growth Programme ; (ii) Women s Entrepreneurship Development Strategy Paper (WEDSP) and its action plan for women s economic empowerment and self-reliance in order to reduce poverty. The implementation of these strategic thrusts will require substantial technical and financial partner support 1 Source: Latest data of the Department of Forecasts and Economic Studies, confirmed by the IMF. 2 Works on the toll motorway and Blaise Diagne International Airport, as well as implementation of projects retained under the Millennium Challenge Account (MCA). 3T he three thrusts of the DPES: (i) Creation of economic opportunities and wealth for the promotion of productive jobs and the structural transformation of the economy, (ii) Acceleration of access to basic social services, social protection and sustainable development, and (iii) strengthening of the basic principles of good governance and the advancement of human rights; 4 Law No of 08 January Decree No of 29 January 2008 determining the organizational and operational regulations for the institutional framework for SCA implementation 5 Law No of 28 July 2008 Framework Law on the promotion and development of Small and Medium-Sized Enterprises defines the characteristics of SMEs in Senegal 1

11 1.2 Rationale for Bank s Involvement In order to generate sustained long-term growth, the Government has prepared the Accelerated Growth Strategy (AGS) that focuses on private sector development based on SME promotion and improvement of the business climate. However, it is clear that the business climate still remains a major concern in efforts to boost private investment, generate the expected growth and create jobs. Indeed, Senegal slipped in the Doing Business ranking from 157 th position in 2011 to 154 th in The above-mentioned national policy and strategy papers give a key role to SMEs in the strengthening and vitality of Senegal s economic fabric, especially as regards job and wealth creation, as well as mobilization of economic and social resources. The SME sector represents about 90% of private enterprises, and accounts for 20% of GDP and 40% of jobs created Nevertheless, SME development continues to face major constraints and challenges, in particular: (i) the business failure rate (about 60% in the first year after start-up); (ii) the dominance of the informal sector and weakness of corporate governance; (iii) difficulties in accessing public procurement despite an attractive legal and regulatory framework and efforts to clear arrears owed to private operators; (iv) the poor quality of financial information; and (v) difficulties in accessing appropriate bank financing for SMEs The project is justified by the overarching need to continue providing assistance to Senegal for the implementation of the economic and financial reforms carried out under the national strategies and policies, especially private sector development. The Bank s involvement, through this capacity building project, will help to remove some of the constraints on the development of the SME sector. Bank support will build knowledge of the SME sector and actions of SME supervisory and promotion structures. By providing sustained support to SME promotion, the Bank seeks to contribute to the development of the private sector, which is the provider of job opportunities The Bank s intervention has dual complementarity, on the one hand, with the Bank s private sector operations (see Appendix II: Table of ADB s portfolio in Senegal), in particular the PARE, which specifically aims to contribute to the improvement of financial governance and the business climate, particularly SME promotion; and, on the other, with the other TFP programmes in SME development (see Annex B1 of the Technical Annexes: Matrix of TFP Interventions). Through the spin-off effects of this project, the Bank will contribute to SME development, as well as the effectiveness and efficacy of programmes like those concerning the upgrading of SMEs and the Subcontracting Stock Exchange. Furthermore, the Bank recently completed the Support Project for Public Procurement Systems in WAEMU Space Phase II, some of whose activities concern SME access to public procurement in the community space. 1.3 Aid Coordination The status of official development assistance coordination is satisfactory, and is reflected in frameworks for exchanges and dialogue such as the General Development Partners Consultative Meeting (RGCPD) or the expanded meeting, the donor thematic groups or the technical committees involving the Government and development partners. A Technical and Financial Partners Consultative Committee (CCPTF) or the Group of 12 6, established since 2008, oversees the development partners consultative framework The Private Sector Group led by the United States includes a thematic sub-group dedicated to SME problems. In addition to the Bank s PARE budget support programme, there are other donor 6 The Group of 12 is composed of Germany, Belgium, Canada, Spain, France, Italy, Japan, Netherlands, the African Development Bank (ADB), the World Bank, the World Food Programme (WFP) and UNFPA.

12 3 interventions in the area of private sector development, including those of USAID, EU and AFD and German (GIZ) and Italian Cooperation (see Annex BI of the Technical Annexes: Matrix of TFP Interventions). The project activities were designed and coordinated with the donors operating in the private sector so as to develop synergy and complementarities among the different interventions. These actions strengthen the Bank s participation in the coordination efforts. II. PROJECT DESCRIPTION 2.1 Contraints and Challenges Since 2003, Senegal has embarked on a vast reform programme to improve the business climate. The reforms have focused mainly on the reduction of company tax, facilitation of business start-up procedures, and the simplification of external trade procedures and timeframes (procedures for obtaining key licenses and for customs clearance). However, a slowdown in the initiation and implementation of certain reforms has led to a drop in Senegal s Doing Business ranking. Beyond these reforms, limited access to financing, inadequate supervision and support structures for SMEs as well as corruption, continue to be constraints on private sector enterprises, especially SMEs which make up the bulk of this sector. The main constraints and challenges are summarized in Box1 below: Box 1 : Main Constraints and Challenges Tax and Customs Services: The tax system is not adapted to SME needs. There is an ongoing reform of the CGI, and the new CGI contains new provisions resulting in: (i) a simplified real profit taxation system; (ii) benefits for Approved Management Centres (CGA) and, (iii) more adequate taxation on certain financial transactions and services. Regarding customs clearance operations, SMEs have to deal with practices that cause delays and foster corruption. The dematerialization of operations from the electronic capture of documents to the removal of the goods will remove these pitfalls for economic operators in general, and SMEs in particular. Public Procurement: The SME Framework Law stipulates that a certain proportion of public procurement be allocated to SMEs and that at least 15% of this amount be allocated to women s SMEs. On the one hand, the DCMP is experiencing difficulty in producing statistics to monitor these legal provisions, while on the other, SMEs generally experience difficulty in preparing bid submissions. High Quality Statistics: The lack of reliable high quality statistics hampers the proper assessment of SME contribution to the economy. Consequently, the design of SME policies is not based on high quality diagnosis, and it is virtually impossible to monitor the impact of the measures taken. This makes it difficult to take into consideration their specific needs and monitor SME-focused policies. It is necessary to have high quality statistical information on SMEs in order to address the virtually non-existent statistical system and disparate sources of basic data. Access to Financing: One of the reasons for difficulties experienced by SMEs in accessing financing is the banks lack of confidence. However, SMEs must shoulder their share of the responsibility, especially as they do not have financial statements. This difficulty in accessing financing further weakens their financial capacity (bank guarantees, financing capacity and equity resources, etc.) which would facilitate access to public procurement and the financing of certain investments. The quality certification programme will enable the project to build SME capacities in financial management and analysis tools, as well as banking services and products Project Components Objectives: The project s overall goal is to contribute to improving financial governance and the business climate so as to achieve lasting and sustainable private sector-driven growth. Its specific objectives are to: (i) help improve services provided to SMEs; and (ii) promote SME development The PAPSP, for a total amount of UA 4.5 million (see Table of Detailed Costs in Technical Annex B2), will be implemented over a 3-year period.

13 Components: The project comprises the following two operational components: (i) support for improved services to SMEs; and (ii) support for SME supervisory and assistance structures; and (iii) a third component relating to project coordination. The objectives of the first two operational components are complementary: the first aims to improve services provided to SMEs under the implementation of the public financial management reforms; and the second aims to promote SMEs. The third component, for its part, seeks to build DASP s capacity in its project coordination and executing role. Table 1.1 Project Components and Proposed Activities Activities Outcomes Component: Support for Improved Services to SMEs (UA 1.98 million) Sub-component 1: Support for SME-dedicated Tax and Customs Services (i) Sensitization through communication in favour of SMEs and their professional organizations, and the preparation and dissemination of an operative guide to SME taxation; (ii) Support for the installation of an electronic record retention system ; (iii) Support for the dematerialization of customs procedures, training of customs technical personnel and SME/SMI users; and (iv) Technical assistance for implementation of the Project for the Discharge Receipt and Interconnection with DGID and the Treasury for a single payment of all customs clearance related charges. Sub-component 2 : Facilitation of SME Access to Public Procurement Design of training and guidance aids (handbooks, leaflets, brochures, etc.) to build the capacities of SMEs and their professional organizations, and organization of training, information and guidance sessions on specific SME-related procurement issues. Sub-component 3: Establishment of an SME Statistics System Support for the conduct of a survey aimed at refocusing all SME statistics and creating an information portal for operators, as well as developing a tool to assess the increase in SME contribution to the economy. The SMEs are familiar with the new measures and take advantage of the tax benefits to which they are entitled. The CME is operational. Tax and customs declaration processing times are shortened over time, and cost savings for SMEs/SMIs. The dematerialization of customs procedures will reduce delays and direct intervention of operators, as well as deter corruption. The SMEs are more acquainted with procurement procedures and their bids are better presented. The volume of public procurement contracts awarded to SMEs increases, 10% of which are awarded to women SME executives. The SME statistics system is operational and streamlined, and produces high quality reliable information for use by existing operators. Component II : Support for SME Supervisory and Support Structures (MUA 1.89) Subcomponent 1 : Support for SME Supervisory and Promotion Structures Building the capacities of the ADEPME in human resources (technical assistance) and in IT equipment and materials, the conduct of studies, organization of training sessions, as well as sensitization and communication campaigns. Establishment of an information system to collect, analyze and disseminate reliable data on women entrepreneurs and dissemination of the updated Women Entrepreneurs handbook. Sub-component 2: Facilitation of Access to Financing Conduct of two studies on the establishment of the legal framework for the factoring business and a public procurement fund for SMEs; (ii) conduct of a study to identify bank litigation issues in Senegal and workshops for exchanges between judges and bankers ;(iii) design of training and guidance aids (guides and handbooks) to build the capacities of SMEs in financial management and analysis tools, as well as banking and financial products and services, and the organization of training sessions. 300 SMEs have been quality certified and have easier access to financing, partnerships and upgrading programmes. Increase in the number of CGA clients and the number of SMEs handled by the CME. More operational SME monitoring systems. The Public Procurement Fund is operational and facilitates access to public procurement. A regulatory framework is put in place which is favourable to development of the factoring business. SMEs are familiar with and make better use of the financial instruments available to them, in particular factoring Annex B2 of the Technical Annexes of this report presents the detailed costs of the component activities, as well as a comprehensive list of goods and services to be procured under the project. In addition, Annex CI of the Technical Annexes presents a detailed description of project activities indicating for each subcomponent: (i) the constraints and challenges to be addressed; (ii) the activities to be implemented under the project; and (iii) the key expected outcomes.

14 5 2.3 Technical Solutions Retained and Other Alternatives Explored During project preparation, alternatives were presented mainly concerning the anchoring of the project and the considerable needs of potential beneficiary structures. A brief analysis of strengths and weaknesses was carried out to select the project s institutional anchor. The Private Sector Support Department (DASP) retained for project coordination is a cross-cutting structure which represents the MEF in most of the private sector development organs and works with development partners operating in the SME promotion and development niche. Discussions were also held to ensure better allocation of the financial envelope so as to focus project objectives on SMEs. Furthermore, with regard to public finance management, the only activities retained were those relating to public services, particularly revenue offices which are dedicated solely to SME/SMI promotion. 2.4 Project Type The PAPSP is an institutional support project financed by an ADF loan; it aims to consolidate institutional reforms and achievements so as to improve the business environment, as well as promote and develop SMEs. This institutional support will help to implement the measures envisaged under the Bank s ongoing (since 2011) budget support operation, the Economic Reform Support Programme (PARE). 2.5 Project Cost and Financing Arrangements The total project cost is estimated at UA 4.5 million, comprising UA 1.83 million in foreign exchange (40.6%) and UA 2.67 million in local currency (59.4%). This financing is broken down between the ADF and the country to the tune of 90% and 10% respectively. The costs were based on unit and fixed prices in accordance with current competitive bids for similar services in Senegal. The costs include a 2% provision for physical contingencies and a 3% provision for price escalation per year, for both foreign exchange and local currency expenditures The Table of Detailed Costs is presented in Annex B 2 of the Technical Annexes of this report. The following are the summary project cost tables by component and expenditure category. Table 2.1 Cost Estimates by Component Components CFAF million UA million % Total % in F.E. L.C. Total F.E. L.C. Total F.E. I. Support for Improved Services to % 43.84% SMEs II. Support for SME Supervisory and % 48.67% Assistance Structures III. Project Coordination, Monitoring % 6.58% and Implementation Total Base Cost % 40.58% Physical Contingencies (2%) % Price Escalation (3%) % Total Project Cost %

15 6 Table 2.2 Cost Estimates by Expenditure Category EXPENDITURE CATEGORIES In CFAF million In UA million Sources of Funds F.E. L.C. Total F.E. L.C. Total ADF GVT A. Goods B. Consulting Services C. Training and Study Trips D. Operating costs Total Base Cost Physical Contingencies (2%) Price Escalation (3%) PROJECT COST The project will be jointly financed by the ADF and the Senegalese Government as shown in Table 2.3 below. The ADF contribution is UA 4.04 million (i.e. almost 90% of the total project cost) and will be used to finance all (100%) of the foreign exchange costs and part of the local currency costs as indicated in the Table below. Table 2.3 Sources of Financing (in UA million) Source UA Million % of Total F.E. L.C. Total ADB ADF % GVT OF SENEGAL % Total Project Cost % Tables 2.4 and 2.5 present the project s annual expenditure schedule by component and expenditure category respectively. The detailed costs are presented in Technical Annex B2. Table 2.4 Expenditure Schedule by Component (in UA million) Component 2012 (Oct. - Dec.) (Jan. - June) Total % in FE I. Support for Improved Services to SMEs % II. Support for SME Supervisory and Support % Structures III. Project Coordination, Monitoring and % Implementation Total Base Cost % Physical Contingencies (2%) Price Escalation (3%) Total Project Cost Table 2.5 Expenditure Schedule by Expenditure Category (in million UA) Expenditure Categories Total % in F.E. (Oct. - Dec.) (Jan. - June) A. Goods % B. Consulting Services and Training % C. Operating costs % Total Base Cost % Physical Contingencies (2%) Price Escalation (3%) Total Project Cost

16 2.6 Project Area and Beneficiaries The project s main beneficiaries are: (i) State structures, which will benefit from the institutional capacity building, in particular, the private sector supervisory and promotion structures through improved public service quality; (ii) SMEs and their professional organizations will benefit from capacity building to respond more effectively to market demands; and (iii) the Senegalese population, especially women and youths, will benefit from the job creation and/or consolidation opportunities. Overall, the Senegalese people will benefit from the project s additionality, especially through its contribution to wealth generation. 2.7 Participatory Process for Project Identification, Design and Implementation The participatory process includes consultations with the beneficiary structures of the Administration and technical and financial partners. During the preparation and appraisal mission, this process was strengthened and expanded to non-state stakeholders, including private sector professional organizations (employers association, economic operators, professional associations, Chamber of Commerce, etc.). The project design took into consideration the operations of other donors to ensure complementarity. Consultations with the beneficiary structures in collaboration with the DASP helped to select and validate the activities to be implemented During the project preparation mission undertaken in January 2012, several working sessions were held with all the project beneficiary structures, including the private sector actors, especially the SMEs. This approach, which was adopted again during the appraisal phase in May 2012, contributed to the deepening, retention and validation of the major activities. Furthermore, the various beneficiary structures expressed their needs in terms of capacity building with quantified estimates of the targeted activities. The organizations of SME Executives, in particular, women business executives, will form an integral part of the Project Steering Committee. 2.8 Bank Group Experience and Lessons Reflected in Project Design ADB s portfolio in Senegal comprises seven active national operations, as well as eight multinational and three private sector projects. In May 2012, the Bank s active national (public and private sectors) portfolio in Senegal had total net commitments of UA million, with a 66% disbursement rate for the public sector window. The overall portfolio performance assessment score of 2.53 in 2011 reflects a highly positive trend since 2009 (score of 2.01). Considerable improvement in operational performance was confirmed since the last portfolio review, with the number of projects at risk falling from 47% to 14.2% from 2009 to March The efficiency gains in operations with regard to document processing (payment and disbursement requests) and in the procurement of goods and services, financial execution and, more generally, in the more rapid resolution of problems concerning projects in the portfolio, were consolidated in As regards economic and financial governance, the Bank has only one active project, a budget support operation, the Economic Reform Support Programme (PARE) which specifically aims to improve public finance management and the business climate, particularly the promotion of SMEs The main lessons learned 7 from the Bank s previous operations are the need to strengthen the coordination of simultaneously implemented operations so as to enhance complementarities and strengthen ownership by the beneficiary structures. Furthermore, recommendations were made to improve the project supervision and steering frameworks and attach the capacity building projects to permanent government structures. Another lesson was the importance of reliable statistics and relevant indicators to assess and monitor the programmes, especially those concerning the private 7 See the Accompanying Note of the Senegal s portfolio performance review ADB, July 2011 and the Completion Reports on the DPS and CSPLP Support Project

17 8 sector and the business climate. These various lessons were taken into account in the PAPSP formulation, particularly as regards institutional anchoring, beneficiary accountability and coordination with the TFPs. This project will also draw on the achievements of the budget support operation, the PARE. 2.9 Key Performance Indicators The performance indicators and expected outcomes on project completion are set out in the results-based logical framework. Box 2 : Key Performance Indicators Output Indicators The unique taxpayer identification number is operational in 2014 The Centre for Medium-Sized Enterprises is operational in 2014 The customs information system is modernized In 2014, simplified procedures are introduced to facilitate customs clearance and removal of goods by SMEs The public procurement handbooks are prepared and distributed to SMEs Three (3) sensitization sessions are organized each year on the new General Tax Code The SME survey is conducted in 2013 and the SME database prepared in 2014 At least 100 SMEs (at least 30% for women) have benefited from the SME product labeling programme The Public Procurement Fund is operational in 2014 Five (5) sensitization sessions are organized on financial education Effect indicators The size of SME population covered by statistics rises from 950 in 2011 to in 2014 The number of SMEs covered by the tax base rises from 920 in 2012 to 2000 in 2014 Customs clearance times are reduced The tax ratio increases from 19.3% in 2011 to 20% in 2014 The proportion of public contracts awarded to SMEs (including women business executives) rises from 20% in 2008 to 30% in 2014 (including 10% to women business executives) Impact indicators SME contribution to GDP rises from 20% in 2011 to 22% in 2014 The Doing Business ranking improves from 154th position in 2012 to 145 th in 2014 SME contribution to job creation increases from 40% in 2011 to 50% in 2015 The amount of private sector credit is up from CFAF 1.87 billion in 2011 to CFAF 2.6 billion in These indicators will be verified against data collected by the DASP responsible for project implementation and whose capacities will be strengthened. Half-yearly activity reports and other reference documents will be provided in consultation with the DASP and during Bank missions. III. PROJECT FEASIBILITY 3.1 Environmental and Social Impacts Environmental Impact: The project is classified under Category III in compliance with the Bank s criteria. Indeed, the project will have no negative impacts on the environment or on the climate change process. The targeted activities are confined to training, technical assistance, studies and the procurement of logistic resources, including office automation and IT equipment Social Impact: The building of human, technical and operational capacities of SME supervisory structures will help to enhance the effectiveness of budgetary resource mobilization and increase the proportion of jobs created by SMEs from 40% in 2012 to 50% in However, the project s contribution to SME development will generate wealth so as to achieve lasting and sustainable growth.

18 Impact on Gender: Women represent 35% of the private sector labour force and 70% of workers in the unstructured sector. The contribution of women entrepreneurs to GDP rose from 0.28% in 2000 to 5.54% in 2010 (1.19% in 2005). The trend shows that 29% of women business executives are seeking to structure their enterprises, and the project will help to consolidate this trend. In this respect, the project will provide support for the promotion of women s entrepreneurship by targeting specific activities in the WEDSP Impact on the Business Environment: Despite the reforms initiated over the past ten years (reduction in company tax, facilitation of business start-up procedures, labour flexibility, simplification of import-export formalities), Senegal slipped from 151st position in 2010 to 154th in the Doing Business ranking. The project s support for the tax and customs administrations (dematerialization of customs procedures, simplification of the General Tax Code, training of users, and communication) will improve the services to the private sector. Furthermore, the preparation of handbooks, training and communication activities will enable SMEs to become more acquainted with the regulatory frameworks and take advantage of the opportunities offered. The support provided to the financial authorities (tax and customs) and to public procurement will help to reduce corruption and strengthen transparency in the business climate. Finally, the quality certification programme backed by the PAPSP will also concern service SMEs operating in the zone of the new Blaise Diagne airport so as to create synergy with the OPSM operations. IV. IMPLEMENTATION 4.1 Implementation Arrangements The project management institutional framework is described in detail in Technical Annex B3. The institutional arrangements for the PAPSP are: (i) the Project Steering Committee (PSC); and (ii) the Project Management Team (PMT).

19 10 Structur es Organisétatiqu ations es Professd encad ionnell rement es des des PME: PME: - Mise en œuvre des formati - Amélior ations des services on, aux séminaiusagers res PME selon les besoins des PME DASP - Mise en ouvre des activités en collaborati on avec les structures étatiques d encadre ment des PME & des organisati ons profession nelles des PME A Project Steering Committee (PSC) will be established to serve as a project steering and monitoring body and to strengthen coordination. The PSC will comprise representatives from the MEF, the Ministry in charge of SMEs, the beneficiary structures and the private sector. The DSAP will provide secretariat services. The PSC will meet on a quarterly basis and whenever it is necessary to ensure consultation among stakeholders, as well as project monitoring. Evidence of the establishment of the Project Steering Committee (PSC) is a condition precedent to first disbursement of the ADF Loan The project will be managed by the Private Sector Support Department (DASP), a structure of the Ministry of the Economy and Finance (MEF), in accordance with the Paris Declaration on harmonization and alignment with national systems. The DASP Director will be responsible for project coordination and supervision. A Project Management Team (PMT) will be set up to build the project implementation capacities and ensure efficient coordination with the beneficiary structures. The PMT will be tasked with the management of all the technical, administrative and financial duties, in close collaboration with the designated focal points in the beneficiary structures. The PMT will be headed by the project leader and two (02) specialist SME support officers, both of them DASP officials. Their appointments will be submitted to the Bank for prior approval. The PMT will also include three experts (accounting, procurement, monitoring and evaluation) to be recruited in accordance with the Bank s procedures, as well as support staff. The Government will provide adequate and appropriate premises to the PMT. The appointment of the Project Leader and recruitment of the Accountant will be conditions precedent to the first disbursement of the ADF Loan Procurement Arrangements: All procurements of goods and services, as well as financial consulting services will be made in accordance with the Bank s Rules of Procedure for Procurement of Goods and Works or, as required, the Bank s Rules of Procedure for the Use of Consultants, using Bank Standard Bidding Documents (SBD) as described in detail in Annex B5 of the Technical